The draft guidelines set out how China aims to comply with the higher capital standards set by Basel III.

The draft guidelines set out the new, layered, capital adequacy requirements:

1. “Minimum capital requirements” for all banks: Tier 1 capital adequacy requirement of 6% (of risk weighted assets), of which 5 percentage points must be “core” Tier 1 capital; and combined Tier 1 and 2 capital adequacy ratio of 8% (of risk weighted assets)

2. In addition all banks will be required to keep a “capital conservation buffer” of 2.5%

3. systemically important banks are required to hold an additional 1% of capital; that gives a total minimum capital adequacy ratio under “normal conditions” of 11.5% for systemically important banks, and 10.5% for non-systemically important banks

4. In addition the regulator will impose an additional “countercyclical buffer” of between 0 – 2.5% during times of excessive credit growth.

George Lekatis
http://www.basel-iii-association.com