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China to launch new macro-prudential regime to curb risks

[BEIJING] China's central bank said on Tuesday it will introduce a new system to assess macro-prudential risks in the financial system in 2016 as the country's banking assets become more diversified.

The Macro-Prudential Assessment (MPA) system will replace the current regime of "dynamic adjustments in differentiated reserve requirements and desirable loan management" that has been in place since 2011, the central bank said in a statement on its website, without elaborating.

Under the existing assessment system, the People's Bank of China uses window guidance and applies different reserve requirement ratios to different banks to get lenders to issue loans at a pace that is appropriate to their respective sizes.

The new assessment system will cover banks' capital adequacy and leverage ratios, assets and liabilities, liquidity and foreign debt risks.

It will also monitor banks' pricing of interest rates to prevent them from engaging in "vicious competition".

The central bank will assess a broader range of credit products, including banks' bond and equity investments and other investments, instead of just bank loans.

The new steps will "further improve the macro-prudential policy framework, more effectively guard against systemic risks, play a counter-cyclical role and adapt to the trend of diversified assets," the central bank said.

The central bank has embarked on its most aggressive policy easing since the global financial crisis, cutting interest rates six times since late 2014 alongside reductions in banks' reserve requirement ratios.