Chile’s Central Bank Declares Systemically Important Banks, Imposes Additional Capital Requirements
Background
The Comisión para el Mercado Financiero (CMF), Chile’s financial regulator, has declared several banks as systemically important financial institutions (SIFIs) and imposed additional capital requirements on them. This decision was made due to concerns over their risk profiles.
Systemically Important Financial Institutions (SIFIs)
According to Article 66 quáter of the General Banking Act, SIFIs are subject to stricter regulations, including higher capital requirements. The CMF has identified [Bank A], [Bank B], and [Bank C] as SIFIs, citing their significant market presence, interconnectedness with other financial institutions, and potential impact on the overall stability of the financial system.
Additional Capital Requirements
The additional capital requirements will be effective starting from [date]. The banks must maintain a minimum common equity tier 1 (CET1) ratio of 10%, up from the current requirement of 8%. They must also hold a higher level of high-quality liquid assets and maintain a stronger liquidity buffer.
Restrictions on SIFIs
In addition to the capital requirements, the CMF has also imposed other restrictions on the SIFIs, including:
- Limits on their dividend payouts
- Constraints on their ability to engage in certain financial activities
Chairman’s Statement
“The CMF is taking these measures to ensure the stability of the financial system and protect depositors,” said [Name], Chairman of the CMF. “We are closely monitoring the risk profiles of all banks, but SIFIs require additional scrutiny due to their systemic importance.”
Broader Effort
The declaration comes as part of a broader effort by the CMF to strengthen the regulatory framework for banks in Chile. The agency is also reviewing the risk profiles of all banks and may impose additional capital requirements or restrictions if necessary.
Additional Capital Requirements for High-Risk Banks
The CMF has also announced that it will impose additional capital requirements on banks that show risks not properly covered by the SIFI designation. These banks must maintain an additional basic capital of up to 4% of their risk-weighted assets, net of required provisions.
Shareholdings and Acquisition of Control
The CMF has issued guidelines on shareholdings and acquisition of control in banks. Banks must obtain authorisation from the CMF before acquiring more than 10% of another bank’s equity. Foreign investors wanting to acquire a significant shareholding in a Chilean bank must also comply with the requirements set out in Article 32 of the General Banking Act.
Liquidation and Resolution
The CMF has issued guidelines on the liquidation and resolution of banks. Banks are subject to a specific insolvency regime, which provides for the appointment of a liquidator and the transfer of assets to another financial institution.
In the event of a bank’s insolvency, the CMF will:
- Revoke its banking licence
- Declare it in compulsory liquidation
- Appoint one or more liquidators
- The liquidator is empowered to sell the bank’s assets and pay off its creditors
Transfers of Business
In a liquidation, the liquidator appointed by the CMF is empowered to transfer part of the bank’s operations to another financial institution. Article 138 of the General Banking Act sets out a simplified regime for banks in liquidation that voluntarily transfer assets to another financial institution.
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