New Rules to Ensure China's Banks Have Enough Cash

China has laid out new rules that will help gauge the ability of banks to resist credit-market strains.

 

The move by the China Banking Regulatory Commission comes after last year's credit squeezes showed stresses in the financial system

 

To take effect March 1, the new rules require banks to keep what is called a liquidity coverage ratio—a measurement comparing liquid assets to total net cash outflows over a 30-day period—at a level of 60% by the end of this year and at 100% by the end of 2018. Banks currently aren't subject to such a requirement.

 

The regulator said the calculation will include banks' off-balance-sheet business, such as some wealth-management products. The products are popular high-yielding alternatives to standard bank deposits in China, but carry higher risk.

 

The regulations will apply to all domestic and foreign banks in China with assets of more than 200 billion yuan ($33.3 billion).

 

"In June 2013, China's interbank market exhibited a liquidity squeeze that was triggered by a number of external factors," said the banking regulator in a statement. "This also exposed shortfalls in the liquidity risk management of commercial banks."

 

 

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