The People's Bank of China: Continue to effectively prevent and control risks in key areas and strengthen the financial stability guarantee system

21st Century Business Herald reporter Tang Jing reported from Beijing

Recently, the People's Bank of China held the 2024 Financial Stability Work Conference. The meeting stressed that preventing and defusing financial risks, especially preventing the occurrence of systemic financial risks, is the fundamental task of financial work. The financial stability system should continue to thoroughly implement the spirit of the Central Economic Work Conference and the Central Financial Work Conference, and do a good job in financial stability in 2024.

The meeting made it clear that it is necessary to continue to follow the principle of "stabilizing the overall situation, overall planning and coordination, categorical policy, and precise bomb disposal", grasp the relationship between power and responsibility, speed and stability, prevention and destruction, and continue to effectively prevent and control risks in key areas. It is necessary to strengthen the analysis of the overall situation of financial stability from a macro perspective, improve the risk monitoring and evaluation system, improve the systemic risk identification mechanism, and strengthen risk warning and early warning.

The meeting demanded that the stock risk should be dealt with in a strong, orderly and effective manner, and the early correction mechanism of risk with hard constraints should be further improved to curb the incremental risk. It is necessary to continue to improve the risk handling mechanism, strengthen the financial stability guarantee system, build a long-term mechanism for preventing and resolving financial risks, and firmly guard the bottom line of preventing systemic financial risks.

Compared with the 2023 Financial Stability Work Conference, this meeting particularly emphasized the need to "grasp the relationship between power and responsibility, speed and stability, prevention and extinction, and continue to effectively prevent and control risks in key areas", and also mentioned that "we must continue to improve the risk disposal mechanism, strengthen the financial stability guarantee system, and build a long-term mechanism for preventing and resolving financial risks".

Continue to effectively prevent and control risks in key areas

Steadily promoting the prevention and resolution of financial risks in key areas is also one of the ten key tasks deployed by the 2024 People's Bank of China Work Conference. The financial risks in the key areas mentioned in this working meeting mainly include the debt risk of financing platforms, the risk of the real estate market and the risk of small and medium-sized financial institutions.

The above-mentioned working meeting made it clear that financial institutions should be guided to rationally use debt restructuring and replacement in accordance with the principles of marketization and rule of law to support the resolution of debt risks of financing platforms. At the same time, strengthen the monitoring and analysis of the operation of the real estate market. Due to the city's policies, we will accurately implement differentiated housing credit policies, meet the reasonable financing needs of various real estate enterprises, and do a good job in the implementation of various policies such as the "16 Financial Measures" and financial support for the construction of affordable housing, the construction of public infrastructure for "level-emergency and emergency", and the transformation of urban villages. In addition, we will promote the resolution of risks of small and medium-sized financial institutions, promote the risk disposal of key institutions, improve the early correction mechanism with hard constraints, and strengthen the professional and normalized risk disposal function of deposit insurance. We will continue to strengthen the financial stability guarantee system.

The Central Economic Work Conference held in December 2023 also clearly stated that it is necessary to coordinate and resolve risks such as real estate, local debt, and small and medium-sized financial institutions, severely crack down on illegal financial activities, and resolutely adhere to the bottom line of no systemic risks.

In terms of real estate market risks, Pan Gongsheng, governor of the People's Bank of China, said in an interview with CCTV at the end of last year that the current mainland real estate market is undergoing structural changes, and on the whole, this process has limited spillover to the financial system and controllable real estate financial risks. In the long run, the mainland's urbanization is still in the development stage, and there is a large demand for improved housing for residents, which can provide support for the long-term stable development of the real estate market and the industry.

In terms of local government debt risks, Pan Gongsheng said in an exclusive interview with Xinhua News Agency at the same time that the People's Bank of China will work with relevant departments to guide financial institutions to steadily resolve the risks of local government stock debts in accordance with the principles of legal compliance and equal consultation, strictly control new debts, improve long-term debt risk prevention mechanisms, and provide emergency liquidity support to areas with relatively heavy debt burdens when necessary. Support local governments to gradually divest the government financing function of financing platforms and transform into market-oriented enterprises through mergers and acquisitions, restructuring, asset injection, etc.

In terms of the risks of small and medium-sized financial institutions, Pan Gongsheng said that the People's Bank of China will cooperate with relevant departments and a small number of provinces where high-risk institutions are relatively concentrated to formulate and implement a plan for the reform of small and medium-sized banks, further reduce the number and level of high-risk institutions, deal with financial risks in accordance with the principles of marketization and rule of law, and protect the interests of the majority of depositors, small and medium-sized investors and insureds in accordance with the law.

Strengthen the construction of a financial stability guarantee system

Continuously strengthening the financial stability guarantee system is one of the important contents of the 2024 People's Bank of China Work Conference, and it is also an important part of steadily promoting the prevention and resolution of financial risks in key areas.

In an exclusive interview with Xinhua News Agency at the end of last year, Pan Gongsheng said that the People's Bank of China will strengthen the construction of the financial stability guarantee system, improve the financial risk prevention, early warning and disposal mechanism, and early identify, warn, expose and deal with financial risks as early as possible.

At the press conference of the State Council Information Office held in January 2024, Pan Gongsheng emphasized that it is necessary to strengthen financial supervision, improve the financial risk prevention, early warning and disposal mechanism, and build a solid financial safety net. At the same time, risks in key areas should be resolved in an orderly manner, and financial risks will tend to converge on the whole.

Specifically, there are four measures: First, it is necessary to strengthen the corporate governance and risk management of financial institutions, which are the "first line of defense" for preventing and defusing financial risks; second, it is necessary to strengthen financial supervision, and macro-prudential management, micro-prudential supervision, and behavior supervision should perform their respective duties, cooperate with each other, and form a joint force; third, it is necessary to promote the construction of financial safety nets, improve the ability of risk monitoring, assessment and early warning, improve the early correction mechanism of financial risks with hard constraints, and establish equal rights and responsibilities. Encourage compatible risk disposal responsibility mechanisms, give full play to the role of industry guarantee funds and financial stability guarantee funds, and strengthen the professional risk disposal functions of deposit insurance; Fourth, strengthen the rule of law guarantee for financial stability, and accelerate the introduction of laws and regulations such as the Financial Stability Law.

Pan Gongsheng also said that it is necessary to grasp the dynamic balance between economic growth, economic restructuring, and financial risk prevention at the macro level. The economy is the foundation of finance, and finance is the mirror reflection of the economy, and many problems in economic operation often overflow from the port of finance and are intertwined with financial risks. The key to effectively preventing and controlling risks at the source is to grasp the balance between economic growth, economic restructuring and risk prevention, that is, the balance between development, reform and stability.

"In the next step, the People's Bank of China will deeply implement the spirit of the Central Financial Work Conference and unswervingly follow the path of financial development with Chinese characteristics." The Financial Stability Bureau of the People's Bank of China said in a column published in November 2023 entitled "Effectively Preventing and Resolving Financial Risks and Firmly Guarding the Bottom Line of No Systemic Risks".

The paper makes it clear that financial supervision should be strengthened in an all-round way, macro-prudential management should be improved, monitoring and analysis of systemic risks, shadow banking and financial technology innovation should be strengthened, and early correction mechanisms with hard constraints should be improved to achieve early identification, early warning, early exposure and early disposal of risks. Strengthen the construction of the financial security system, implement policies by category, deal with the risks of high-risk small and medium-sized financial institutions in a timely manner, and effectively prevent the transmission of risks across regions, markets and borders, so as to firmly guard the bottom line of no systemic risks.

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