China's plan to identify several banks, insurers and securities firms as domestic systemically important financial institutions, or D-SIFIs, that are subject to tougher capital regulations would be credit positive for most financial institutions in the country, Moody's said.
Bloomberg News reported Oct. 10 that the People's Bank of China is leading regulators in identifying a number of financial companies that may be deemed too big to fail. The authorities would initially short-list at least 50 institutions as potential D-SIFIs, according to sources.
Companies receiving the designation would face additional capital requirements, and could be subject to additional rules on leverage, risk exposure and information disclosure, the sources added.
The rating agency said the plan would improve overall financial stability in the country and would be a natural step to implement the government's decision to overhaul the regulatory framework for large financial entities.
A coordinated regulatory framework for D-SIFIs would help curb systemic risks by increasing the capital level for the bulk of the financial sector, Moody's said. The agency added that the plan would broaden the credit divergence between those identified as D-SIFIs and smaller companies, which are less likely to receive government aid if needed.
Chinese authorities currently identify 20 banks as systemically important, Bloomberg had reported.