Preventing systematic risks

Since the First National Financial Work Conference was held in 1997, China’s financial regulatory and supervising mechanism has greatly improved. The People’s Bank of China, the nation’s central bank, China Banking Regulatory Commission, China Securities Regulatory Commission and China Insurance Regulatory Commission have been working side by side and playing their respective due role in regulating the financial market and guarding against risks in the sector. However, as financial institutions expand their business to an unprecedented level of complexity, chances are that trans-sector financial turmoil will break out. The current regulatory mechanism faces problems of inefficiency and high-cost communication. It may not be able to timely respond to complex emergencies.

Therefore, while maintaining the current mechanism, the meeting decided to set up a committee under the State Council to oversee financial stability and development to better respond to new scenarios. Meanwhile, the central bank will play a greater role in regulating financial markets as its functions of overall supervision and risks prevention were strengthened, in line with the prevailing practice of highlighting central banks’ overseeing role in the United States and European nations.

Going forward, the premier of China will act as the head of a newly-established committee coordinating the three existing regulatory bodies. The committee’s duties and rules of procedures will also be clarified to ensure its efficiency and accountability. Such a reformed and higher-level regulatory committee is expected to deal with issues relating with excess liquidity, defaults and malpractices, and guard against systematic risks that would threaten the entire economy and social stability.