China’s biggest banks are preparing to issue hundreds of billions of dollars in loss-absorbing bonds designed to avoid bailouts, but rating agencies nevertheless expect Beijing to support the nascent market in times of crisis.
Crafted in the aftermath of the 2008 financial crisis, global rules for so-called total loss-absorbing capacity (TLAC) require major banks to issue senior debt that can be written off in the event of a failure, helping to avoid the need for the costly government bailouts that swept Europe and the US.
China’s banking sector, the world’s largest by assets, has yet to begin offshore issuance of such debt and lags behind other regions. However, a TLAC-eligible senior bond from ICBC in May, the first of its kind in China, has already sparked scrutiny of the government’s potential role.