CBIRC Commits to Further Squeeze on Shadow Banking Following 16 Trillion Yuan Decline

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The China Banking and Insurance Regulatory Commission (CBIRC) has committed to further efforts to stymie the country’s shadow banking sector in the wake of the COVID-19 pandemic.

On 18 May a CBIRC official said to domestic media that the authority would “further improve improve shadow banking regulatory mechanisms, and prevent a rebound and return of risk.”

According to CBIRC its shadow banking crackdown has reduced shadow banking activity by 16 trillion yuan over the past three years, most of which was comprised of “high-risk operations that were structurally complex or involved significant regulatory arbitrage.”

CBIRC pointed out that as of the end of the first quarter of 2020 China’s interbank wealth management balance was 846 billion yuan, for a contraction of 87% compared to its historical peak.

New asset management regulations launched in early 2018 have also driven a rise in the launch of wealth management vehicles by Chinese banks, after mandating the removal of “implicit guarantees” on wealth management products (WMP’s).

According to CBIRC as of the end of April it had given its approval to the establishment of wealth management subsidiaries by 19 Chinese banks, of which 12 have commenced operations.

The non-principal guaranteed WMP balance of Chinese banks and their subsidiaries stood at 25.9 trillion yuan in total.

The next step will be for CBIRC to “maintain regulatory focus and effectively and pragmatically perform category-based regulation,” with an especial emphasis on:

  1. Strengthening on-site inspections;
  2. Strengthening regulatory coordination;
  3. Strengthening systems development;
  4. Establishing shadow banking statistical monitoring systems and public disclosure systems.

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