China Launches Counter-Cyclical Capital Buffer to Help Banks Fend off Risk | Investing News


Reuters

FILE PHOTO: The headquarters of the People’s Bank of China, the central bank, is pictured in Beijing, China, as the country is hit by an outbreak of the new coronavirus, February 3, 2020. REUTERS/Jason LeeReuters

HONG KONG (Reuters) – China’s central bank and banking and insurance regulator set up a counter-cyclical capital buffer mechanism on Wednesday to help banks fend off risk and to keep the financial system stable.

The buffer aims to protect the banking sector from periods of excess aggregate credit growth that could imply rising financial risk.

The initial ratio was set at zero, which means no additional capital requirements for banks for now.

The People’s Bank of China (PBOC) and the China Banking and Insurance Regulatory Commission will regularly assess and adjust buffer requirements to prevent systemic risk, they said.

The new mechanism “is an important measure to improve the macro-prudential policy framework and enrich the macro-prudential policy toolkit”, according to a statement posted on the PBOC website.

Such assessments and adjustments will be based on factors such as economic and financial conditions, leverage ratios and the stability of the financial system, it added.

(Reporting by Kevin Yao in Beijing and Twinnie Siu in Hong Kong; Editing by Andrew Heavens and Nick Macfie)

Copyright 2020 Thomson Reuters.

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