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Central bank upgrades regulatory framework to ward off financial risks

Xinhua, December 29, 2015 Adjust font size:

China's central bank said Tuesday it will upgrade its macro prudential policy framework, an approach to financial regulation aimed at reducing systemic risks.

The new mechanism, macro prudential assessment, will take into consideration seven aspects when evaluating the financial system to prevent systemic risks and improve counter-cyclical adjustment, the People's Bank of China (PBOC) said in a statement.

The capital adequacy ratio, a measure of an institution's ability to cushion loan risks, will be the core of the assessment, said the PBOC.

Apart from loans, other assets including investment in bonds and equities will be added to the PBOC's checklist for financial institutions, a move to prevent them from transferring their assets to evade credit control.

The new mechanism will also keep an eye on irrational interest rate setting to avoid unhealthy competition. < China has moved to further liberalize its financial system in the past year, removing restrictions on bank interest rates and giving banks more freedom to lend by removing a loan-to-deposit ratio stipulation.

The government has listed as one of its major tasks in 2016 to guard against and defuse financial risks, according to the Central Economic Work Conference, a key economic meeting, held earlier this month. Endi