A new banking regulation, "Systemically Important
Banks" (the Regulation), has come into force upon its
publication in the Turkish Trade Registry Gazette. The purpose of
the Regulation is to determine (i) the "systemically important
banks" whose operations are vital for the Turkish financial
system, (ii) the amount of additional capital buffer these banks
will be required to reserve, (iii) how these banks should behave if
they are unable to reserve the required additional capital and (iv)
other related obligations.
The concept of "systemically important banks" became
the focus of bank reform following the events of 2008, when the
failure of several big banks led to a worldwide economic crisis.
Consequently, the Basel Committee on Banking Supervision
established criteria for identifying such banks and their
obligation to reserve additional capital. The criteria included a
bank's size, its level of integration into the financial
system, its complexity and the difficulty of its replacement. The
Regulation is Turkey's attempt to introduce these criteria into
The Regulation sets out the methods for calculating the risks
particular banks pose to the financial system about which
each bank is given a "score" so as to identify
those which are "systemically important" and envisages
assigning banks qualifying as such to three different categories.
Banks in the same category are subject to the same regulatory
obligations. However, the Turkish Banking Regulation and
Supervision Agency (BRSA) reserves the right to re-categorize
banks, including designating a bank as "systemically
important" even when its score would otherwise not warrant
such, or revising the banks' scores. Having said that, the
methods, categories and scores set out in the Regulation are
initially to be kept unchanged for three years following the first
In addition to these three categories, the Regulation envisages
a fourth category which is to be kept empty initially. This fourth
category is reserved for banks whose scores are on the rise, with
the idea being to identify and monitor those banks which might
eventually pose a greater risk to the economy.
The method for determining the final score takes the weighted
average of the following:
40% of the bank's size score
20% of the bank's integration score
20% of the bank's complexity score
20% of the bank's difficulty in being replaced score.
The sub-scores mentioned above are determined by a series of
calculations which involve the addition of certain items listed in
an Annex of the Regulation, finding the benchmark score by
comparing it to the scores of other banks and determining the
subject bank's score by taking the weighted average of the
items listed in the Annex.
The scores are to be calculated each year based on the preceding
year's last month of consolidated data. The "systemically
important" status is relevant for the year after the year the
score is calculated. In other words, banks deemed
"systemically important" must reserve an additional
capital buffer in the year following the year they are first
identified as such. Banks must be in compliance with the Regulation
as of 31 March 2016.
Several precautions must be taken by banks unable to reserve the
required additional capital buffer. For example, such banks may be
precluded from paying dividends and, in any event, will be required
to present to the BRSA a yearly plan for fulfilling the obligation
to reserve additional core capital.1
1. This note does not deal with all topics or cover every
aspect of the topics of the original regulation. It does not aim to
provide legal or other advice. If you require legal advice, or
further details, please contact us.
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.
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