New rules to re­duce banks’ liq­uid­ity risks

China's Foreign Trade (English) - - Briefing -

China has is­sued new rules that will help com­mer­cial lenders bet­ter guard against liq­uid­ity risks, the bank­ing and in­sur­ance reg­u­la­tor said on May 25.

The new rules, which will come into ef­fect on July 1, will add three new in­di­ca­tors for gaug­ing liq­uid­ity risks, ac­cord­ing to the China Bank­ing and In­sur­ance Reg­u­la­tory Com­mis­sion.

One of the new mea­sures is the net sta­ble fund­ing ra­tio, which mea­sures banks’ long-term sta­ble fund­ing to sup­port busi­ness de­vel­op­ment. The ra­tio will ap­ply to lenders with to­tal as­sets of at least RMB 200 bil­lion (USD 31.3 bil­lion), and the min­i­mum ra­tio is 100%.

The net sta­ble fund­ing ra­tio mea­sures the amount of longer-term, sta­ble sources of fund­ing em­ployed by an in­sti­tu­tion rel­a­tive to the liq­uid­ity pro­files of the as­sets funded, and the po­ten­tial for con­tin­gency calls re­gard­ing fund­ing liq­uid­ity aris­ing from off­bal­ance sheet com­mit­ments and obli­ga­tions. It is a sig­nif­i­cant com­po­nent of the Basel III Ac­cord, a set of fi­nan­cial re­forms de­vel­oped by the Basel Com­mit­tee on Bank­ing Su­per­vi­sion, to strengthen reg­u­la­tion and risk man­age­ment within the bank­ing in­dus­try.

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