Basel Committee’s Regulatory Consistency Assessment Programme (RCAP) on China’s Liquidity Coverage Ratio (LCR)

Overview of RCAP Assessment

The Basel Committee’s Regulatory Consistency Assessment Programme (RCAP) has conducted an assessment of China’s compliance with the Liquidity Coverage Ratio (LCR) requirements. The assessment aimed to evaluate China’s adherence to the Basel standards for LCR.

Key Findings from the Assessment

High-quality Liquid Assets (Numerator)

• Compliance: China’s definition of High-Quality Liquid Assets (HQLA) is compliant with the Basel standard.
• Stricter Requirements: However, China has implemented stricter requirements in some areas compared to the Basel standard.

Outflows (Denominator)

• Operational Requirements: Chinese regulation includes operational requirements applying to HQLA, which are recommended to be separated from Level 2 assets for clarity.
• Separation of Assets: This separation is intended to provide a clearer understanding of the different asset categories and their respective treatment under the LCR framework.

PSE Securities in HQLA

• Risk Weighting: China’s regulation does not include securities of Public Sector Entities (PSEs) with a 20% risk weight in Level 1 HQLA.
• Automatic Inclusion: Instead, these securities are automatically included in Level 2 HQLA.

Sovereign and Central Bank Securities in HQLA

• Symmetric Restrictions: The Chinese regulation does not apply the symmetric restrictions applicable to Level 1 assets that are assigned a 0% risk weight under the China Banking Regulatory Commission (CBRC) requirements.
• Risk Weighting: These securities are instead treated in accordance with their respective risk weights as per the Basel II standardized approach for credit risk.

These findings do not impact the assessment outcome but provide additional context and information about China’s implementation of the LCR standards.