According to the China Financial Stability Report-2023, the number of high-risk banks has reached 337 (with total assets of 6.63 trillion yuan), and all of them are small and medium-sized banks. Specifically, there are 14 urban commercial banks, 191 rural financial institutions and 132 village and township banks. It is mainly distributed in the three eastern provinces, Gansu, Inner Mongolia, Henan, Shanxi and other regions. It is urgent for small and medium-sized financial institutions to resolve their risks.
On May 14, the Party Branch of the Restoration and Resolution Department of the State Administration of Financial Supervision published an article detailing the disposal of high-risk financial institutions from two aspects: working principles and resolution mechanisms.
The article makes it clear that it is necessary to promote legislation on financial risk disposal, formulate and improve laws and regulations, and clarify the trigger standards, decision-making procedures, enforcement mechanisms, disposal rights and tools, capital guarantees, loss sharing and division of responsibilities for financial risk disposal. It is necessary to consolidate the responsibilities of financial institutions and shareholders, and actively explore effective ways for social capital to participate in the restructuring of small and medium-sized financial institutions in a market-oriented manner.
The responsibilities of the Restoration and Resolution Division are to formulate relevant risk disposal systems, standards and procedures for high-risk institutions, and to carry out risk management and other work for institutions with serious risks and difficulty in sustainable operation. This is the first time that the Restoration and Resolution Department of the State Administration of Financial Supervision has published an article since its establishment.
The Party Branch of the Restoration and Disposal Department of the State Administration of Financial Supervision stated in the article that it is necessary to follow the deployment of the Party Committee of the State Administration of Financial Supervision, adhere to the general tone of the work of seeking progress while maintaining stability, and dispose of high-risk financial institutions in a steady and orderly manner with the sense of responsibility of "always rest assured" and the spirit of hard work, prevent risk spillover and spread, and firmly adhere to the bottom line of no systemic financial risks.
It is necessary to accurately grasp the working principles for the prudent and orderly handling of high-risk financial institutions
The first is to strengthen the party's leadership. Strengthening the centralized and unified leadership of the CPC Central Committee over financial work is the fundamental guarantee for doing a good job in financial work. Integrating the Party's leadership throughout the entire process of handling high-risk financial institutions is the basic principle that must be followed in the prudent and orderly handling of high-risk institutions. Local party committees and governments assume the territorial responsibility for the risk disposal of small and medium-sized financial institutions, which is conducive to the overall planning of risk resources, giving full play to the respective advantages of relevant entities, and forming a coordinated and effective disposal mechanism with the same direction, joint management, and joint maintenance, so as to jointly maintain financial stability.
The second is to adhere to marketization and rule of law. In accordance with the principle of marketization, give full play to the function of the market mechanism, promote the transfer and undertaking of financial transactions, and prevent the interruption of financial services and amplify financial risks; Strictly protect the legitimate rights and interests of relevant stakeholders in accordance with the law; In accordance with the spirit of relevant laws and legislation, resolutely punish illegal and criminal conduct, and ensure that the effectiveness of the disposition can stand the test of time and history.
The third is to prevent risk spillover. The longer the disposal cycle, the greater the depreciation of asset value, and the stronger the risk spillover effect. Once it is determined that a financial institution has lost its ability to survive on its own, it should immediately initiate the resolution procedure to preserve the value of financial assets to the greatest extent and prevent the expansion or spread of risks.
Fourth, reduce moral hazard. The intervention of public resources will lead to the distortion of the behavior of financial institutions to a certain extent, and it is necessary to establish an orderly connection mechanism between early intervention and risk disposal, take strong early intervention measures for problem institutions, force them to implement self-recovery, or use market resources to promote restructuring, strictly define the prerequisites, procedures and objectives for the use of industry funds or public funds, reduce the investment of public resources as much as possible, and prevent adverse selection and "broken window effect".
Fifth, classification and precise policy. Factors such as the severity of the risk of a single institution, the characteristics of creditors, the competitiveness and substitutability of the industry in which it is engaged, and the regional market share should be taken into account.
It is necessary to establish and improve a normalized financial risk handling mechanism
The first is to promote legislation on the disposal of financial risks. Formulate and improve laws and regulations, clarify the trigger standards, decision-making procedures, enforcement mechanisms, disposal rights and tools, capital guarantees, loss sharing, and division of responsibilities for financial risk disposal, and establish a resolution framework led by administrative organs, coordinated by the central and local governments, with the participation of industry security funds, and supported by judicial departments, so as to achieve an effective connection between administrative and judicial disposal. Promote the criminalization of serious financial violations, and provide legal protection for cracking down on the criminal acts behind financial risks.
The second is to clarify the division of responsibilities for disposal. Consolidate the main responsibilities of institutions, shareholders and senior executives for risk disposal, and actively take self-help measures such as making up for losses and replenishing capital. Local party committees and governments assume the responsibility for territorial risk disposal and stability maintenance, coordinate local resources to participate in the disposal of small and medium-sized financial institutions, and make overall plans for the collection of non-performing assets, the recovery of stolen goods and losses, the pursuit of accountability, the punishment of corruption, and the fight against crime. The central financial management department and the local party committee and government share the same responsibilities, exert efforts in the same direction, and answer the same questions together, so as to create a suitable monetary environment for the handling of financial risks, provide regulatory policy support, and the judicial department provides corresponding judicial guarantees. The Industry Guarantee Fund and the Financial Stability Guarantee Fund shall provide disposal funds in accordance with laws and regulations.
The third is to enrich the sources of funds for disposal. Explore the establishment of a multi-level fund guarantee mechanism, and clarify the responsibilities and order of different entities to bear losses. Adhere to the self-bailout funds to give priority to absorbing losses, and consolidate the responsibilities of financial institutions and shareholders. Actively explore effective ways for social capital to participate in the restructuring of small and medium-sized financial institutions in a market-oriented manner. Improve the supplementary mechanism of the industry guarantee fund and the financial stability guarantee fund, and support the industry guarantee fund to flexibly participate in risk disposal through various means.
Fourth, early intervention and risk management are connected. In strict accordance with the requirements of supervision of "long teeth and thorns" and angular angles, adhere to the combination of treatment and prevention of diseases, strengthen the normalization of financial risk investigation, monitoring and early warning, and source control, and timely capture of emerging and tendentious problems. Establish an early intervention mechanism with hard constraints, decisively take mandatory regulatory measures against institutions that trigger conditions, and clarify the time limit requirements for rectification to prevent small things from dragging on. Uniformly standardize the standards for the designation of high-risk financial institutions, and promptly initiate disposal procedures for those that meet the designation standards, so as to carry out risk disposal in a solid and prudent manner.
Fifth, we will promote reform and risk reduction in an integrated manner. Earnestly do a good job in the second half of the risk disposal article, for high-risk institutions that have completed the disposal of "hat off", formulate a special supervision plan, clarify the special regulatory arrangements for a period of time, and curb the rebound of risks. Support and cooperate with local party committees and governments to comprehensively strengthen the leadership of the party in local small and medium-sized financial institutions, select and strengthen the management of senior executives, improve the corporate governance mechanism, improve risk management and control capabilities, balance profitability and functionality, and completely reverse the inertial thinking of radical and blind expansion of "making big money and making quick money", and prevent "wearing new shoes and walking the old road".
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