Trapping Trillions in the "Siege": Securing the "Ticket" for Systemically Important Banks

Securities Times Reporter Ma Chuanmao

Why is expanding asset size crucial for some banks? Market competitiveness, cost-sharing effects, and risk resistance are the widely recognized core reasons.

In a recent interview with Securities Times, several industry insiders pointed out a deeper driving logic: scale is not just a result of bank business development but also a core variable under the institutional framework arrangement. From licensing entry thresholds to implicit market guarantee mechanisms, relevant institutional designs profoundly shape the underlying motivations for banks to actively grow their scale.

Competing for Entry

Systemically Important Bank List

Whether a bank can enter the list of systemically important banks has always been seen as a key dividing line for development in the industry.

“Some banks’ recent two-year expansion was partly to break into this ‘encirclement’,” an industry insider analyzed. Being included means higher capital requirements and stricter regulatory standards, but it also brings dual visible and invisible benefits.

Explicit benefits include advantages in licensing and business qualifications. Whether it’s wealth management subsidiaries, financial leasing, consumer finance licenses, or bond underwriting qualifications, most rely on the parent bank’s asset scale strength. Industry insiders frankly say that banks with insufficient size find it difficult to secure access to such businesses.

Implicit benefits come from brand halo effects. Being included as a systemically important bank is akin to receiving a certain level of “endorsement,” which helps improve credit ratings and lower financing costs. Many banks also increase brand promotion after qualifying, further supporting deposit gathering and other business expansion.

However, size alone is not a sufficient condition for entering the “encirclement.” According to the “Systemically Important Bank Evaluation Measures,” the assessment system covers four dimensions: size, interconnectedness, substitutability, and complexity, with size accounting for only 25% of the weight.

For example, among city commercial banks that have crossed the trillion-yuan scale threshold, five—Ningbo Bank, Jiangsu Bank, Beijing Bank, Nanjing Bank, and Shanghai Bank—have been included, while nine other trillion-level city commercial banks like Hangzhou Bank and Chongqing Bank have not yet been listed.

Selected Banks

Facing Stricter Capital Management Constraints

Being included in the list of systemically important banks means stricter regulation, most directly reflected in capital management.

Systemically important banks are required to hold additional capital, meaning that after being included, every expansion step must bear higher capital consumption. In an environment where net interest margins continue to narrow and profit growth slows, the pressure on capital replenishment increases.

Some city commercial banks that have already surpassed the trillion-yuan mark have core Tier 1 capital adequacy ratios that have long been below 9%, leaving very little buffer before hitting regulatory red lines. This means that if they cannot quickly replenish capital through retained earnings or external financing, their growth pace will have to slow down.

Asset quality is another constraint. An executive from a city commercial bank pointed out that during rapid expansion, the risks of the credit assets issued are often lagging, typically taking two to three years to be gradually reflected in financial statements. For city commercial banks that have crossed the trillion-yuan scale in recent years, the real asset quality stress tests may have just begun.

“We’ve suffered the biggest losses and taken the biggest detours in the past because we weren’t ‘stable enough,’” emphasized a city commercial bank chairman at an internal meeting, stressing the importance of learning lessons from history.

Some senior executives of trillion-yuan city commercial banks also offered a cautious framework for evaluating peer expansion: “Their original style was relatively prudent; a slight expansion could be tolerated, and the economic scale of this city can support the growth of a city commercial bank.”

Latecomers

Is the Expansion Window Narrowing?

Previously, the Central Financial Work Conference explicitly emphasized “preventing disorderly expansion,” with the main tone for small and medium financial institutions being “reducing quantity and improving quality” and “focusing on local, characteristic operations.” What impact does this have on latecomers still in the sprint? Market opinions vary.

One view holds that the window is narrowing. Leading institutions that have already gone through the process have gained first-mover advantages, and latecomers face not only stricter regulatory environments but also more crowded tracks competing for limited regional resources.

“Those city commercial banks in less economically developed areas face higher debt costs and weaker asset pricing power when trying to catch up,” said an executive from a city commercial bank to Securities Times.

Zeng Gang, director of the Shanghai Financial Development Laboratory, believes that in the current industry cycle, truly forward-looking small and medium banks must shift their focus from pursuing “big” scale to optimizing their asset-liability structure.

Another perspective suggests that scale differentiation itself is normal. Some industry researchers pointed out that among trillion-yuan city commercial banks, valuation has already shown significant divergence from high to low—markets are distinguishing which banks’ growth is supported by regional economic foundations and which rely on leverage. In fact, safety premiums are never unconditional passes; they depend on whether banks can demonstrate that their scale expansion matches their risk management capabilities.

(Edited by: Qian Xiaorui)

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