BUSINESS China tightens regulation of large banks to avoid ‘too big to fail’ problem

BUSINESS

China tightens regulation of large banks to avoid ‘too big to fail’ problem

Global Times

08:48, December 05, 2020

A file photo shows a pedestrian walks past the headquarters building of the People's Bank of China in Beijing, capital of China. (Photo: Xinhua)

China's central bank, along with the top banking industry regulator, on Thursday released new rules for assessing large domestic banks that should be deemed systemically important in a bid to forestall the "too big to fail" problem that threatens financial stability.

The tightened regulations came following the suspension of a high-profile dual listing by fintech giant Ant Group, amid concerns of possible catastrophic financial problems if trouble were to break out at a mammoth fintech company like Ant.

The document outlined how systemically important banks should be valued and what the requirements are for their information disclosure.

Systemically important financial companies that have a large business scale and substantial interconnectedness could greatly impact regional or even global financial stability if they fall into problems.

There could be additional regulatory requirements regarding leverage levels and corporate governance at these banks, according to the document.

Chinese financial regulators will continue to act against systemic financial risks with a long-term mechanism for risk prevention and control, said Liang Tao, vice chairman of the China Banking and Insurance Regulatory Commission, at the Annual Conference of Financial Street Forum 2020 in Beijing in October.

Amid downward pressure on the economy, risks in the economic sphere may increase financial risks, Liang said, adding that the country will step up efforts to forestall and defuse such risks while adhering to high-quality economic development.

Apart from the new guidelines, Chinese banking authorities have been making continuous efforts to crack down on illegal activities in the sector to contain systemic risks.

Fan Yifei, deputy governor of the People's Bank of China (PBC), said on Thursday that a platform has been set up for supervising financial network safety and information sharing, according to a statement on the PBC website.

He urged financial institutions to improve the quality of the data they submit to the platform in a bid to attract the participation of more companies to support its sustainable operation.

Meanwhile, China has clamped down on shadow banking, amid concerns over the hidden risks in the high volume of complex and potentially risky loans in the sector.

A report on shadow banking released on Friday showed that shadow banking levels in China had fallen by 16 trillion yuan ($2.34 trillion) by the end of 2019 from a peak in 2017.

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