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Chinese regulator drafts new rules on banks' liquidity risk management

The China Banking Regulatory Commission has proposed introducing three quantitative measures to manage commercial banks' liquidity risks.

Among the three regulatory gauges, the net stable funding ratio, which measures available stable funds divided by required stable funds, should be no less than 100% among commercial lenders with 200 billion yuan or more of assets.

For banks with assets of less than 200 billion yuan, the CBRC said their high-quality liquid assets adequacy ratio, which equals high-quality liquid assets divided by short-term net cash outflow, should be no less than 100% by the end of 2018.

For all the banks, the regulator introduced a liquidity matching ratio to measure the degree of asset-liability matches. The ratio, which should be not below 100% by the end of 2019, is weighted average funds divided by weighted average fund utilization. The CBRC said the lower the liquidity matching ratio, the greater the asset-liability mismatch problem a bank has.

In addition, the regulator said it will optimize calculation methods on some regulatory indicators, while elaborating on liquidity risks management requirements, including financing management.

The regulator said interest rate liberalization and deepening financial innovation has made it easier for liquidity risks to transfer in the banking system. It added that current regulatory indicators are insufficient to regulate small and medium-sized banks with assets under 200 billion yuan. The proposed new rules will enhance banks' capability to prevent risks.

The CBRC asked the public to send feedback on the proposed rules by Jan. 6, 2018, and it plans to implement the new rules from March 1, 2018.

As of Dec. 6, US$1 was equivalent to 6.62 Chinese yuan.