New rules to reduce banks’ liquidity risks
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.