BEIJING: China will launch standardised and unified requirements for large and medium-sized banking and insurance institutions to make resolution plans.
Commonly known as “living wills”, resolution plans are detailed strategies for orderly resolution of material financial distress or failure of institutions. They help prevent systemic risks and maintain financial stability during such circumstances.
The China banking and insurance regulatory commission, the country’s top banking and insurance regulator, had started soliciting public opinions on interim measures for the implementation of resolution plans of the banking and insurance institutions whose assets amount to a certain scale.
This will prevent “too big to fail “financial institutions from taking excessive risks or becoming over-reliant on public assistance during a crisis, experts said.
Banking institutions, including commercial banks, rural credit cooperatives and financial asset management companies, whose on and off-balance sheet assets after adjustment, both domestic and abroad, were no less than 300 billion yuan (US$46.3bil) at the end of the previous year, should make resolution plans, in accordance with the requirements of the interim measures.
The same rules will apply to insurers whose on-balance sheet assets, both domestic and abroad, were no less than 200 billion yuan at the end of the previous year.
Large banks know that the government will use public funds to bail them out if they fail, so they may take excessive risks to make short-term profits while leaving possible risks to the country. — China Daily/ANN