Why banks should prepare for tighter regulation

The China Banking Regulatory Commission (CBRC) is looking to introduce regulatory parameters governing liquidity risks in the banking sector. It will issue liquidity risk rules, which would regulate bank deposits and loans more strictly.

“Banks with larger retail deposit bases will probably be in a better position compared to banks that have traditionally relied more on wholesale funding,” said Jack Wang of King & Wood Mallesons.

The Commission is hoping the new rules will bring the sector in line with international standards. The parameters include a liquidity coverage ratio, which sets the standards on highly liquid assets held by banks to meet short-term obligations. They also include a net stable funding ratio, which measures medium and long-term funding of assets of banks.