The Financial Supervisory Commission (FSC) on Thursday said it would finalize revisions to the incentives for the nation’s five domestic systemically important banks (D-SIBs), after the banks complained that tighter capital requirements would make them less competitive.

The commission in June categorized CTBC Bank (中國信託銀行), Cathay United Bank (國泰世華銀行), Taipei Fubon Bank (台北富邦銀行), Mega International Commercial Bank (兆豐銀行) and Taiwan Cooperative Bank (TCB, 合庫銀行) as D-SIBs, thanks to their scale, complexity, interconnection and lack of substitutes.

Although the “too-big-to-fail” tag indicated that the government would support the banks if they were in trouble, it was not entirely welcomed by the five, as the commission requires them to meet new capital cushion standards that are 4 percentage points higher than those for regular banks by 2023.

D-SIBs’ common equity Tier 1 (CET1) ratio and Tier-1 capital ratio cannot be less than 11 percent and 12.5 percent respectively, compared with the minimums of 7 percent and 8.5 percent for regular banks, the commission said.

“It is reasonable for important banks to hold additional capital, but we think the buffer of up to 4 percentage points is too much. Based on foreign regulations, 2 percentage points should be enough,” Mega Financial Holding Co (兆豐金控) chairman Michael Chang (張兆順) told reporters on the sidelines of an event in Taipei on Wednesday.

Taiwan Cooperative Financial Holding Co (合庫金控) chairman Lei Chung-dar (雷仲達) agreed, saing that higher capital rules would raise TCB’s funding costs.

The commission talked with the three privately owned banks on Thursday and is to meet the two others on Monday to collect more opinions and suggestions, Banking Bureau Deputy Director Sherri Chuang (莊秀媛) told a news conference at the commission’s offices in Taipei.

The commission said it originally planned to grant privileges for the five banks regarding new business or product applications, but the banks were more interested in persuading the commission to use a different calculation method.

The commission plans to reduce the weighting of personal loans and mortgages for risk calculation next year, lowering the capital the D-SIBs would need to hold for the two kinds of risk-weighted assets, it said.

Personal loans of less than NT$20 million (US$644,019) would have a lower weighting, the commission said.

Current rules place the figure at less than NT$10 million.

The weighting of a mortgage currently depends on whether the borrower buys the house for self-use, but the commission has proposed using the loan-to-value ratio to determine its weighting.

The new calculation method would allow banks to hold less capital, the commission said.