Hong Kong, Nov. 30, 2018 - S&P Global Rating said today that China will define domestic systemically important financial institutions (i.e. large but failing financial institutions) and improve the relevant regulatory system, which will help to prevent systemic financial risks. At a time when policymakers are demanding banks to increase lending to private enterprises, which are generally regarded as riskier, this will help strengthen prudential regulatory requirements.
"Defining domestic systemically important financial institutions and expanding the list properly will help strengthen the control of the financial system," said Yu Liang, S&P Global Rating Credit Analyst. "For selected institutions, capital regulatory restraint mechanisms will be further strengthened. Some medium-sized banks may face some pressure if they are selected.
On November 27, the People's Bank of China, the Banking and Insurance Regulatory Commission and the Securities Regulatory Commission jointly issued Guidance Opinions on Improving the Supervision of Systematic Important Financial Institutions. The term systemically important financial institutions is often considered to have the meaning of "too big to fail". Unlike other countries, China's important financial institutions include not only banks and insurance companies, but also securities firms and financial holding companies.
Domestic systemically important financial institutions will face stricter regulatory requirements such as capital and leverage ratio, and stricter regulations in corporate governance, risk management, disclosure requirements, crisis management, etc.
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