China's regulatory merger may strengthen financial oversight - Fitch

Fitch Ratings is out with a note briefly detailing some of the positive aspects of China's recently-announced plans to merge the banking and insurance regulatory bodies in a massive efficiency overhaul effort currently underway within China's borders.

Key Quotes:

  • "A more unified approach could enhance regulatory oversight and help to limit contagion risks."
  • "Single regulatory entities that oversee both banks and insurance companies are common in developed markets. A unified Chinese regulator should be in a better position to deal with the increasing complexity of financial activities."
  • "Consolidation of the financial supervisory system is likely to strengthen cooperation and information sharing among related agencies."
  • "The regulatory overhaul will see the People's Bank of China take on some of the responsibilities for regulatory policymaking previously held by the China Banking Regulatory Commission and the China Insurance Regulatory Commission."
  • "If successful, this should address regulatory gaps that previously gave rise to arbitrage and shadow banking activities."
  • "However, the merger will take time, and questions remain over whether the PBOC would exercise its power to address financial sector risks should growth fall below the authorities' expectations."
  • "This latest reform is in keeping with the authorities' broader efforts to take a more comprehensive approach that prevents risks from shifting around the financial system as market participants find ways around each new regulation."
  • "Regulatory tightening since the beginning of 2017 has focused on closing loopholes by forcing financial institutions to better account for underlying risks in their credit exposure."
  • "The overall result should be that the authorities have more control over leverage and threats to financial stability over time."

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