Here is the translation of the provided text into English: **Constructing a Differentiated Capital Supervision System to Enhance Bank Risk Management Levels** The China Banking and Insurance Regulatory Commission (CBIRC) and the central bank recently solicited public opinions on the "Commercial Bank Capital Management Measures (Draft for Comments)".

The key points of this revision include: 1.

Building a differentiated capital supervision system that matches capital supervision with the scale of bank assets and the complexity of business operations, thereby reducing the compliance costs for small and medium-sized banks.

2.

Comprehensively revising the rules for measuring risk-weighted assets, including the credit risk weight method and internal rating method, market risk standard method and internal model method, and operational risk standard method, to enhance the risk sensitivity of capital measurement.

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3.

Requiring banks to establish effective policies, processes, systems, and measures to timely and fully understand changes in customer risks, ensuring the applicability and prudence of risk weights.

4.

Strengthening supervision and inspection, optimizing the application of stress tests, and making full use of the second pillar to further enhance regulatory effectiveness.

5.

Raising the standards for information disclosure, introducing more than 70 disclosure templates, and requiring banks to disclose detailed qualitative and quantitative risk-related information to enhance external market constraints.

**Further Improving the Capital Supervision Rules for Commercial Banks** The initiation of the revision work for the "Commercial Bank Capital Management Measures (Trial)" is mainly due to the consideration of further improving the capital supervision rules related to commercial banks, promoting banks to improve risk management levels, and enhancing the quality of bank services to the real economy.

Specifically: 1.

Changes in the situation.

Over the past decade, we have been implementing the "Commercial Bank Capital Management Measures (Trial)".

This method has been used for ten years, and now the situation has changed significantly, and the business models of commercial banks have also undergone significant changes.

For example, the continuous development of off-balance-sheet and intermediary businesses, and the emergence of new financial instruments.

The development of Asset-Backed Securities (ABS) is very fast, and various financial innovation activities are emerging one after another.

The old rules are a bit outdated.

Moreover, in terms of international rules, the Basel Committee has been continuously introducing post-crisis regulatory reforms after the 2008 financial crisis, issuing a series of new prudential supervision requirements, as the global capital supervision minimum standard, requiring member countries to carry out regulatory consistency assessments.

In the future, we need to align with international rules, and it is also necessary for the relevant rules to actively approach these new rules of the committee.

This is conducive to promoting banks to continuously improve the refined management level of risk measurement, and to guide banking institutions to better serve the real economy.

2.

Simplifying the capital measurement for small banks and guiding them to focus on serving counties and small and micro businesses.

According to the scale of bank business and risk differences, banks are divided into three levels or types to match different capital supervision plans.

This is actually to avoid a one-size-fits-all approach.

International standards are relatively strict and complex.

So the first consideration is for large banks to align with international regulatory rules, targeting systemically important financial institutions, such as the five major banks (ICBC, ABC, BOC, CCB, and BOCOM), as well as some joint-stock commercial banks; banks with smaller asset scale and international business are categorized into the second level, with slightly simplified regulatory rules; for small banks with a scale of less than 10 billion yuan, the capital measurement is further simplified, differentiated treatment is given, and they are guided to develop their businesses, continuously innovate, and serve the county economy and regional economic development with more freedom, such as rural areas, agriculture, and small and micro enterprises.

In this way, regulatory consistency and rule differentiation are organically combined to stimulate the vitality of small and medium-sized banks and reduce the compliance costs of the banking industry.

3.

The comprehensive revision of the rules for measuring risk-weighted assets is actually to enhance the logical consistency between the standard method and the advanced method, improve measurement sensitivity, restrict the use of internal models, perfect internal models, and reduce the arbitrage space of internal models.

Specifically, there are several aspects, including credit risk, market risk, and operational risk.

From the perspective of credit risk, the focus of the weight method is to optimize the classification standards of risk exposure, increase risk-driven factors, and refine risk weights.

For example, the risk exposure in the real estate industry, mortgage loans need to be distinguished by different types, repayment sources, loan-to-value ratios, etc., and different risk weight levels are set.

The scope of the internal rating method is restricted, and risk parameters are calibrated.

In terms of market risk, the new standard method calculates the capital requirement by determining risk factors and sensitivity indicators, replacing the original method based on positions and capital coefficients.

Compared with the original simple method based on investment and capital coefficients, it is now more accurate.

In addition, the Expected Shortfall method is used to replace the Value-at-Risk method to capture the fat tail risk of market fluctuations, making it more in line with reality.

In terms of operational risk, the new standard method is based on business indicators and introduces the internal loss multiplier as an adjustment factor for the capital requirement.

**The Positive Impact on the Development of Commercial Banks** In the short term, banks need a digestion and learning process.

Everyone is not familiar with the new rules, and there is a problem of transition between the old and the new.

This time, the regulatory authorities issued the draft for comments, wanting to form an effective interaction between the regulatory subjects and the market, which is also conducive to improving the implementation effect of the new rules.

Banks need to further improve their understanding of risk management.

No matter how strict and scientific the rules are, they are dead things, and people are alive, so higher requirements are proposed for people's quality and ability.

For example, in credit risk management, for some new asset management products, it is necessary to accurately identify their risk levels.

Therefore, it is necessary to do a good job in due diligence and basic information review, which is the prerequisite.

Otherwise, it is difficult to clearly define the standards.

In terms of market risk, banks are required to improve the business policies of the trading platform and refine the operational processes of the front, middle, and back offices.

In addition, wealth management and asset management product innovation are emerging one after another.

The new rules require banks to implement the requirements of penetrating management.

Referring to international standards, three measurement methods are proposed, namely the penetration method, the authorized basic method, and the 12.5% weight, and the conditions that each method should meet are detailed.

According to specific situations, take the appropriate measures, and make the work more detailed, risk management will be more targeted and effective.

For banks themselves, it is still necessary to improve their own business quality.

The opening of the financial industry is a major trend, and it is necessary to consciously learn and apply international rules.

After the new rules come out, it is necessary to continuously optimize business processes and improve internal systems on the basis of past work, and take this as a handle to improve the overall management level.