In Sweeping $43 Trillion Overhaul, China Merges Banking And Insurance Regulators

Confirming previous reports, overnight Caixin announced that China plans to merge the banking (CBRC) and insurance regulators (CIRC) and to form a new agency called China Banking and Insurance Regulatory Commission (CBIRC) in the biggest industry overhaul since 2003.  Meanwhile, the CBIRC will hand its central bank the power to write the rules for the financial sector, as part of a sweeping overhaul aimed at closing regulatory loopholes and curbing risk in the $43 trillion banking and insurance industries.

As Bloomberg notes, a new regulatory structure with the PBOC as the pivot is emerging as the annual legislative meetings progress through their second week. Still to come (see below) are personnel appointments, including the expected anointment for Politburo member Liu He as a Vice Premier in charge of financial and economic affairs, making him President Xi Jinping’s go-to official as he seeks to avert a financial crisis after years of rapid credit growth.

“The PBOC has more power: It has added the role of lawmaking to its previous role as the adviser on monetary policy,” said Zhou Hao, an economist at Commerzbank AG in Singapore. “The PBOC’s role will largely be policy making and the newly merged bank and insurance regulator will mainly be the policy executor. And the other thing for sure is that Liu He will play a more important role in China’s reforms.”

This is a further step to strengthen the coordination among regulators. A merged agency should be able to fix regulatory loopholes and strengthen the “look through” ability, which should reduce regulatory arbitrage. The merger is rather easier to complete, as regulatory oversights on banks and insurers are mainly rooted on capital adequacy.

And, as Deutsche Bank notes, it also suggests more clear responsibilities among agencies. The central bank is empowered with greater authority of policy formation and macroprudential oversights, while the CBIRC and existing CSRC mainly focus on micro-prudential for individual institutions. The PBOC, CBIRC and CSRC are all under oversights of Financial Stability and Development Committee (FSDC).

The nature of this restructuring is mainly about streamlining functions to alleviate two problems: the first being that multiple government agencies are in charge of the same issue which creates inefficiencies, and the second being there can be limited oversight on some issues, especially regulatory arbitrage in the financial sector.

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