The People’s Bank of China (PBoC) said on Tuesday that it has put in place “dynamically differentiated required reserve ratios” among 40 local banks, state media reported. The new reserve requirement system, which requires different banks to set aside different levels of reserves depending upon their specific financial situation, is being applied to banks with low capital adequacy ratios who have lent significantly since the beginning of the year. The central bank believes the new system offers a more flexible mechanism to control lending growth and improve the risk management capabilities of banks. The new policy comes on the back of last week’s announcement of a 0.5% increase in the benchmark bank reserve requirement ratio amid an overall move to tighten monetary policy.
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