Tighter rules aimed at reining in China’s ‘shadow banking’ system
Print Edition
CHINA’S central bank and regulators for the banking, securities, insurance and foreign-exchange sectors said yesterday in a rare joint notice that they will tighten controls over the financial industry, particularly in interbank borrowing.
The notice gave few details about the new rules, but it did signal they are aimed at practices that could harm the whole financial system if left without adequate controls and monitoring.
Analysts said the rules are aimed at reining in the “shadow banking” system, where billions of yuan slosh through unregulated channels.
The regulations are likely to affect commercial banks, investment banks, trusts, fund-management companies, securities firms and insurers. They will define and regulate activities such as interbank lending, cross-institutional deposits, lending between financial institutions, interbank refinancing for trade and investments in other financial institutions.
For example, commercial banks will be limited in how much money they can borrow and lend on the interbank market. Transactions between banks have allowed them to skirt regulatory scrutiny.
“The new regulations signal that the era of rapid growth for banks is over,” Shi Lei, vice general manager of fixed-income at Ping An Securities Ltd, said on Weibo yesterday.
The spiraling growth of the financial sector, with institutions expanding their funding activities often through backdoor channels, has become a worry for regulators. Although the financial industry has played a major role in economic growth, increased reliance on opaque funding schemes raised red flags about the entire system being put at possible risk. According to yesterday’s notice, the industry will be put under stricter scrutiny because some businesses have been developed in non-traditional ways, with insufficient disclosure and financial supervision.
“Off-balance sheet wealth-management businesses have become more and more important,” Shi said. “The era of asset management has arrived.”
Trust companies are already on notice that they can no longer use third-party agents to sell products. In the past, some agents were actively peddling high-interest products that the issuers had trouble servicing when repayment came due.
The notice also said regulators will prompt financial institutions to develop asset securitization faster, which involves products like mortgage-bundling.
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