Turkey's Banking Regulation and Supervision Agency ("BRSA") has introduced a system for measuring and evaluating capital adequacy in banks which are "too big to fail". Principles and procedures are outlined to ensure domestic banks hold sufficient equity to balance damages related to probable risks. The Regulation is the latest in a series of Turkish banking regulation changes, which collectively develop a more compatible regulatory structure with the Basel standards. The Regulation on Measuring and Evaluating Capital Adequacy for Banks ("Regulation") was published in Official Gazette number 29633 on 23 February 2016.
The global financial crisis highlighted the necessity of close monitoring for systematically important banks ("SIB"). The paradigm shift came at the expense of "deregulated approach" that had become the modus operandi of financial markets and competent regulatory authorities in the pre-crisis era. Consequently, it became widely understood that measures to bailout and save SIBs would involve serious costs at a global and domestic level in the event of a crisis or financial difficulties. These entities are accordingly deemed "too big to fail". Within this context, Basel III standards include provisions to define SIBs and to suggest introducing additional capital adequacy requirements for global banks. In parallel, G-20 Leaders and The Basel Committee have emphasized the necessity of the additional capital adequacy and other safety mechanisms for domestic SIBs. The Regulation determines systematically important banks in Turkey, as well as their additional liabilities.
The Regulation outlines an indicator-based measurement approach for determining whether an entity qualifies as a SIB. Indicators and sub-indicators consider an entity's:
- Size.
- Interconnectedness.
- Complexity.
- Lack of service substitutes.
The Regulation establishes a threshold system for each variable, with the threshold values established and adjusted by the Banking Regulation and Supervision Board (within the BRSA). Banks which have a general score exceeding the relevant thresholds, are deemed to be systematically important. SIBs are then categorized into three groups based on their overall general scores, calculated according to specified weightings of the indicators noted above. Different levels of capital adequacy will apply depending on this categorization.
Banks undergo the SIB assessment each year, based on consolidated data from the previous December.
Banks which qualify as systematically important must maintain additional loss-absorbency for the following year, in the form of a capital buffer. Additional loss absorbency is calculated according to additional core capital, measured under the Regulation on Capital Maintenance and Countercyclical Buffer, as well as the ratios for each group settled by Regulation.
During the implementing period, the first assessment will be conducted according to consolidated data from December 2014. Banks which are deemed to be SIBs must meet the additional liabilities until 31 March 2016.
Please see this link for full text of the new Regulation (only available in Turkish). The BRSA published related amendments in October 2015 (more) and January 2016 (more).
Information first published in the MA | Gazette, a fortnightly legal update newsletter produced by Moroğlu Arseven.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
