Published on : Nov 04, 2015
China Construction Bank has become the fourth lender from China to join a global group of 30 lenders allowed to hold extra capital. This list of lenders is termed important to maintain the stability of the world’s financial system. Announced by the Financial Stability Board, CCB is the only new lender in an annual list released this week. The Financial Stability Board was established in the aftermath of the global financial crisis in 2007-09 to protect the worldwide financial system from such crisis in future. Joining this coveted list of lenders comes costly for the banks as not only their profitability gets affected due to holding extra capital, they are subjected to intense regulatory scrutiny as well.
CCB is the second largest bank in China and has expanded its international operations in the last two years. Among its international operations, the Chinese lender has launched an exchange-traded money-market fund in London, has acquired a business in Brazil, and has gained access to the London Metal Exchange by acquiring a British metal trading firm. The global list of the 30 lenders is being headed by HSBC and JP Morgan. Other banks included in the list are BNP Paribas, Citigroup, Barclays, Deutsche Bank, and Royal Bank of Canada.
While HSBC and JP Morgan are required to hold 2.5% points of extra capital beyond the Basel III requirements owing to their systemic importance, banks such as BNP Paribas, Barclays, Deutsche Bank, and Citigroup are needed to hold 2% points of extra capital. CCB is in the bottom category of the global list. The category of the banks is being decided by their size, complexity, geographical presence, and potential impact on the financial system. CCB is required to hold 1% point of extra capital. Officials at CCB have not commented regarding the bank’s inclusion in the global list.