CHILE Law and Practice Contributed by: Alvaro Moraga Fritz and Sebastián Moraga Nazar, Moraga & Cía.
CET1, adjusted for additional regulatory provi - sions, constitutes the basic capital used for lim - its set in the LGB and other relevant regulations. Banks must maintain an additional basic capital equivalent to 2.5% of their risk-weighted assets, net of required provisions, above the minimum effective equity requirement. The LGB establishes the following additional capital regimes: • conservation buffer – a fixed charge equiva - lent to 2.5% of risk-weighted assets, net of required provisions, built with CET1, per Article 66 bis of the LGB; and • countercyclical buffer – a variable charge between 0% and 2.5% of risk-weighted assets, also built with CET1, as outlined in Article 66 ter of the LGB. The Central Bank will set the countercyclical buffer requirement after consulting the relevant commission, granting a minimum six-month implementation period. Oversight will com - mence upon full implementation, with no propor - tional requirements during the transition period. Regarding effective equity, basic capital and additional capital, Chapter 21-1 of the RAN defines prudential regulatory adjustments and exclusions for assets and liabilities included in the calculation of a bank’s effective equity, as per Article 66 of the LGB. This regulation incor - porates recommendations and methodologies proposed by the Basel Committee on Banking Supervision (BCBS). Article 66 quater governs the classification of systemically important banks. The commission, with the Central Bank’s agreement, will define factors and methodologies for this classifica -
tion, considering criteria such as size, market share and financial interconnection. Once clas - sified, the commission may impose the following requirements while the bank retains this status: • an increase of 1.0 to 3.5 percentage points in basic capital on risk-weighted assets; • an increase of up to 2.0 percentage points in basic capital on total assets; • early application of the technical reserve if deposits exceed 1.5 times effective equity; and • a reduction in the interbank lending margin to 20% of effective equity. 8. Insolvency, Recovery and Resolution 8.1 Legal and Regulatory Framework Banking companies must immediately inform the CMF of any situation indicating financial instability or non-compliance with requirements, such as sustained losses, regulatory violations or liquidity issues. If such a situation arises, they must submit a remediation plan within five days (extendable to ten) to address the issue. This plan must be approved by the board of directors and sent to the CMF, which may request adjust - ments. The company must periodically report on the plan’s progress. If the plan involves a capital increase, the board must call a shareholders’ meeting within 15 days, subject to the commission’s approval. If the plan is rejected or not fulfilled, sanctions will apply. Additionally, banks may secure loans of up to three years as part of their remediation plan under specific conditions, provided they are authorised by the commission. These loans may be converted into equity in cases of mergers or
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