Financial Stability Law Will Counter Risks: Beijing

The mainland on Wednesday issued a draft law on financial stability in a bid to strengthen safety nets and prevent systemic financial risks in the world's second biggest economy.

China plans to launch a financial stability protection fund to help counter major financial risks, and will establish cross-agency mechanisms for risk detection and disposal, the central bank said.

"In the face of complex economic and financial situations at both home and abroad, it is necessary to proactively set up an authoritative and efficient system to prevent, resolve financial risks, and prepare for rainy days," the People's Bank of China (PBOC) said in a statement on its website.

The mainland economy is slowing amid a resurgence in Covid-19 cases, a sluggish property market, and the fallout from the Ukraine crisis.

The financial stability fund will be financed by financial institutions and financial infrastructure operators, with the PBOC also providing liquidity when needed, the draft law states. The bank said financial institutions and their major shareholders must first attempt to rescue themselves before seeking government help, however.

The risk-disposal mechanism will be headed by the finance committee of the State Council, and puts more onus on financial institutions, local governments, and financial regulators to head off financial risks.

Mismanagement at financial institutions and misuse of capital by shareholders had contributed significantly to financial risks in the past, the PBOC said. (Reuters)