Bank Regulation

China To Help Smaller Banks Retain Liquidity

China’s central bank announced over the weekend it plans to use several tools to keep liquidity in the market and that it will provide liquidity support to small and medium-sized banks.

Reuters reported that People’s Bank of China made the statement during a meeting with the Financial Stability and Development Committee. The banks and lenders that participated in the meeting also said volatility in the interbank market is calming down.

In December the People’s Bank of China announced a new policy tool aimed at boosting lending to small and private companies. The government of China said at the time the country will roll out a targeted medium-term lending facility which it said will provide a “long-term stable source of funding for financial institutions based on the growth of their loans for small and private firms.” The central bank in China went on to note that it plans to continue to put in place a “prudent and neutral” monetary policy that will ensure liquidity. It also said its future targeted policies will be more effective.

Investors have been jittery ever since late May when the China Banking and Insurance Regulatory Commission took control of Baoshang Bank. That sent the markets in China into a tailspin, prompting People’s Bank of China to inject cash. That lead to speculation that more takeovers were coming. Earlier in June China’s central bank said there won’t be any more takeovers of banks after that intervention. The government said that was a standalone incident and not indicative of a policy. “Everyone, please don’t worry. At present we don’t yet have this plan,” it said in a statement on its website, reported Reuters.

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