China is poised to require certain financial institutions to start planning for how to handle their affairs if they ever find themselves on life support, reported Caixin.
The goal for these plans, often called “living wills,” is to ensure that teetering financial institutions don’t end up forcing the state to swoop in with costly bailouts to prevent the possibility of a systemic collapse of the financial system. Since 2019, authorities have stepped in to bail out several banks, namely Baoshang Bank, Hengfeng Bank and Bank of Jinzhou.
The China Banking and Insurance Regulatory Commission (CBIRC) on Friday released draft rulesthat will require commercial banks, rural credit cooperatives, and financial asset management or leasing firms with consolidated assets at home and abroad of at least RMB 300 billion ($46.3 billion) to create recovery and resolution plans, reported Caixin.
The CBIRC’s draft rules state that financial institutions should first make use of their own assets and ask for help from their own shareholders before turning to the government for support. Under the draft rules, government bodies would only step in — and only at the smallest possible cost — if a financial institution’s own plan was ineffective and a collapse could trigger regional or systemic risks.