Regulator reins in Philippine banks deemed 'too big to fail'

The central bank will adopt threshold levels and new indicators.

The Bangko Sentral ng Pilipinas is tightening its watch on domestic banks deemed too big to fail as part of an effort to safeguard the stability of the financial system, the monetary board said in a press release.

The monetary board approved the adoption of a threshold level and changes in the weights of indicators, as well as calibration of the level of additional capital requirement which will apply to all universal and commercial banks, their subsidiaries and quasi-banks, and all branches of foreign banks under a consolidated basis.

Domestically systematically-important banks (D-SIBS) will now be assessed according to size, interconnectedness, substitutability, and complexity. The first two indicators have a greater weight since they are “more critical measures” that decide a bank’s importance to the financial system.

D-SIBS are then identified based on overall scores against a certain threshold.

Such banks will be subjected into different higher loss absorbency (HLA) buckets and will be required to increase their minimum capital to 2.5% of total risk-weighted assets.

D-SIBS placed under bucket 1 will have a 1.5% HLA requirement, whilst those in bucket 2 will have a requirement of up to 2%.

The BSP will maintain a bucket 3 with a 2.5% requirement to provide incentives for banks to avoid becoming more important.

Apart from setting higher capitals, all D-SIBS will be under more intensive supervisory and will have a mandatory recovery plan that will address their risks to the financial system and the economy.

Banks categorised as D-SIBS will be notified of their standing with details to their HLA bucket and individual score.