Oct 11, 2018 (China Knowledge) - Bloomberg had earlier reported the plans of Chinese Government to increase the number of companies it deems as systemically important financial institutions. This signifies the increased importance policymakers towards its crisis-prevention efforts, amidst its increasingly burgeoning economy and nation’s debt.
A systemically important financial institution (SIFI) is a firm that is deemed to bring a potential financial risk to the economy in the event of its collapses. Since the 2008 financial crisis, governments globally have implemented and enhance regulatory practices to prevent the failure of SIFIs and their adverse effects of potential failure on the economy.
Regulators led by China’s central bank will shortlist at least 50 of the country’s largest banks, insurers and brokerages to be included in the list of SIFIs. Firms that have been shortlisted will face increased scrutiny and extra regulatory burden imposed on them. They might be subjected to higher capital requirement, periodic stress tests, and additional regulatory practices. They might also be subjected to disclosed certain information to the regulatory body.
China owns world’s top four banks in terms of assets. Industrial & Commercial Bank of China, China Construction Bank Corp., Agriculture Bank of China and Bank of China have a combined asset of USD 12 trillion, a figure that is bigger than many countries GDP. Banks in China have accounted for more than 80% of China’s financial assets at the end of 2016. The interconnectedness of such firms with the financial industry and economy of China has become an increasing concern for the Chinese government.
With the introduction of SIFIs list, more regulatory practices and policies will be in place to limit the potential impact of a large firm’s collapse and a system to guide potential bailout, reducing the impacts of such adversaries on the country and the economy.
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