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China to designate more financial institutions as 'too big to fail'

Shanghai

CHINESE authorities said that they will designate more financial institutions as systemically important, a sign that policymakers are stepping up crisis-prevention efforts as the nation's debt burden and financial risks swell to unprecedented levels.

Financial regulators led by China's central bank will evaluate candidates from sectors including banking, brokerage and insurance based on their assets, business complexity and how connected they are with others, according to a joint statement on Tuesday.

Firms that receive the designation will be subject to extra capital requirements, and may face additional rules on leverage, risk exposure and information disclosure, according to the statement.

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"We urgently need to have policy guidance to identify, regulate and deal with SIFIs," the regulators said in the statement.

Increasing the number of SIFIs - a technical description for financial institutions seen as "too big to fail" - may help President Xi Jinping's government strengthen oversight of China's US$40 trillion financial system. The country's rapid expansion of lending over the past decade has provided a big jolt to economic growth, but it has also alarmed everyone from bond-rating companies to hedge fund managers and the International Monetary Fund.

"The PBOC (People's Bank of China) is trying to close up the loopholes in the regulatory framework to ensure the oversight is up-to-date with financial activity," said Tommy Xie, an economist at Oversea-Chinese Banking Corp in Singapore.

Identifying and regulating SIFIs became a focus for global authorities in the wake of the 2008 crisis, when governments were forced to bail out some of the world's biggest financial firms. BLOOMBERG