China’s banking regulator China Banking Regulatory Commission (CBRC) has proposed new rules for wealth management products to mitigate risks from shadow banking.
Under the new rules, China will allow wealth management products sold by commercial banks to invest in domestic bond and stock markets.
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The new rules will encourage direct investment through these wealth products instead of through trust companies which are a crucial part of China’s shadow-banking system.
The regulator has also urged banks to set aside funds to protect against potential risks from wealth-management products.
According to the draft rules, banks will have to set aside only 10% for wealth-management products and also set aside 50% of the management fees they charge borrowers as a provision for losses.
CBRC will allow banks wealth funds set up their own investment accounts to rein in the role of trust companies in its financial system. Previously, banks had to work with trust and securities firms to extend funds from wealth-management products to enterprises.
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By GlobalDataCBRC said: "They will help firms lower financing costs and better serve the real economy directly."
The proposed rules are expected to create a direct link between wealth-management products and projects that enterprises need to finance and will also lower funding costs for businesses as the economy slows.
However, the banks would still be banned from investing funds from wealth-management products into the stock market.
