The China Banking and Insurance Regulatory Commission ("CBIRC") has recently issued the Guiding Opinions on the Innovation of Capital Instruments of Commercial Banks (Revised) (the "Guiding Opinions"), immediately effective from the date of issuance.
The Guiding Opinions expound on the basic principles for commercial banks to issue capital instruments, the criteria of identifying qualified capital instruments, and the working mechanism for issuance of capital instruments of commercial banks. The Guiding Opinions incorporate principal changes in three aspects. The first is adjusting the requirements in relation to the names of trigger events for capital instruments and the trigger conditions for other types of Tier II capital instruments, by reference to the Third Edition of the Basel Agreement and international common practices. Such adjustment helps China's banks compete with their global counterparts on a level playing field. The second is providing further clarity on the sequence for absorption of losses by various capital instruments and maintaining the differences of capital instruments in different tiers in loss absorption. The third is refining the basic principles and the working mechanism regarding the issuance of capital instruments of commercial banks, and setting out relevant requirements according to the actual conditions.