China Moves to Launch Financial Stability Guarantee Fund by the End of September

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The Chinese central government has commenced efforts to create a financial stability guarantee fund as first flagged in policy announcements made at the start of 2022.

Officials from the State Council said that the Chinese central bank was leading the formation of team for the establishment of a financial stability guarantee fund, and that work for the establishment of the fund would be completed prior to the end of September this year.

The officials made the remarks on 25 March at a press conference held by the State Council.

A spokesperson from the China Banking and Insurance Regulatory Commission (CBIRC) also said that the authority would “research and improve relevant laws and administrative arrangements, to drive the establishment of a financial stability guarantee fund as soon as possible, and accumulate back-up funds for the disposal of major risk.”

“The financial stability guarantee fund will be used to dispose of major risk that poses a systemic threat,” he said. “Alongside deposit insurance and industry insurance funds for the disposal of regular risk, it will be an indispensable part of China’s financial security network.”

CBIRC stressed the role that the market will play in the creation of the financial stability guarantee fund, with capital for the fund to be raised by market institutions.

“[The fund] will be derived from the market and used for the market, with differentiated fees for different sectors and institutions, to effectively balance risk and reward with responsibility, and avoid the interests of the state and taxpayers suffering from loss,” said the CBIRC representative.

China’s Government Work Report released at the start of the year called for the establishment of a financial stability guarantee fund to shore up the security of the Chinese financial system.

The Report said that the fund would “play the role of a deposit insurance system and industry guarantee fund, and make use of market-based, rule-of-law based methods to dissolve of risk hazard; effectively deal with external shocks, and firmly guard the baseline against the onset of systemic risk.”