China’s banks face $900b bill to meet global bailout rules

China’s five largest lenders, designated as global systemically important (G-SIBs), must raise nearly $900 billion in special debt by 2028 to comply with international standards for absorbing losses in a crisis, Reuters reported on Tuesday.

Under these new rules, implemented in 2015, G-SIBs worldwide are required to hold a minimum amount of special debt, known as Total Loss-Absorbing Capacity (TLAC), that can be written down before resorting to taxpayer bailouts.

The global Financial Stability Board (FSB) established these rules in 2015, gave China’s four biggest state-owned banks, with combined assets exceeding $21.5 trillion in 2023, were given a decade to comply.

By next January, the Industrial and Commercial Bank of China (ICBC), Bank of China, Agricultural Bank of China, and China Construction Bank must hold TLAC equivalent to 16 per cent of risk-weighted assets, rising to 18 per cent by 2028.

The Bank of Communications, a new addition to the G-SIB group, has an additional two years to comply.

Analysts estimate the five banks will need to raise 6.2 trillion yuan ($859 billion) by 2028. Much of this will likely come through issuing TLAC bonds, a new class of debt that can be written down before senior debt in a crisis.