The top-level design of the financial stability system has been released. On April 6, the People’s Bank of China publicly solicited opinions on the Financial Stability Law of the People’s Republic of China (Draft for Comments). The draft for comments has six chapters and forty-eight articles, and has made a full-process and full-chain institutional arrangement for the prevention of financial risks in advance, resolution during the event, and disposal after the event.
“The Financial Stability Law is the legal cornerstone for maintaining financial security.” Wen Bin, chief researcher of China Minsheng Bank, believes that it has a fundamental position in the legal system arrangement for maintaining financial security, and will provide basic legal guarantees for my country’s financial security and stability. It is conducive to further improving and strengthening the top-level design of my country’s financial stability system.
Improve the working mechanism of financial stability
Industry experts believe that the draft for comments will help establish an authoritative and efficient financial risk prevention, resolution and resolution mechanism, and firmly maintain the bottom line of no systemic risk.
Wen Bin believes that throughout the domestic and foreign countries, financial development and financial supervision must be based on financial stability. In recent years, my country has achieved important phased results in the battle to prevent and resolve major financial risks, and overall financial risks have tended to converge. However, in the face of complex and severe internal and external situations, especially the profound changes in the international political and economic structure, and the unstable and unbalanced global economic recovery, my country’s financial security and stability still faces various risks and challenges. The fragility of the financial system cannot be ignored. There are still deficiencies in the risk management mechanism. In particular, the legal mechanism for maintaining financial security is not perfect, the legal system involving financial stability lacks overall design and cross-industry and cross-departmental overall arrangements, the relevant provisions are scattered, the regulations are too principled, and some important issues still lack institutional norms.
In recent years, financial management departments have successfully dealt with a number of risk events and accumulated valuable experience. It is necessary to summarize relevant working mechanisms and mature practices in a timely manner, and upgrade them to a long-term legal system.
To maintain financial stability, it is necessary to establish an authoritative, efficient, and well-coordinated working mechanism, consolidate the responsibilities of all parties, and encourage all parties to perform their duties and cooperate closely, so as to form a joint effort to maintain financial stability. Therefore, the draft for comments stipulates that the National Financial Stability and Development Coordination Mechanism (Financial Committee of the State Council) will coordinate financial stability and reform and development, direct the prevention, resolution and disposal of major financial risks, and major matters will be submitted for approval according to procedures. Relevant departments and localities shall, in accordance with the division of responsibilities and the requirements of the Finance Committee, perform their duties of preventing, resolving, and disposing of financial risks in accordance with the law, and closely coordinate and cooperate to form a joint effort. Deposit insurance fund management institutions and industry security fund management institutions shall perform their duties in accordance with the law, and play the role of market-oriented and law-based disposal platforms.
Lou Feipeng, a researcher at the Postal Savings Bank of China, believes that the draft for comments provides comprehensive and systematic regulations on issues such as unclear working mechanisms and responsibilities, and imperfect risk disposal mechanisms in my country’s financial stability, which will help improve the financial stability working mechanism. It is of great significance to consolidate the responsibilities of all parties, mobilize the enthusiasm of all parties, and give full play to the market mechanism to do a good job of financial stability.
Establishment of a Financial Stability Assurance Fund
The Financial Stability Guarantee Fund is a hot topic recently. This year’s “Government Work Report” clearly stated that a financial stability guarantee fund should be established. The draft for comments proposes that the state establishes a financial stability guarantee fund, which will be managed by the national financial stability and development overall coordination mechanism as a backup fund to deal with major financial risks.
Industry experts believe that this is an important institutional arrangement made on the basis of comprehensively summarizing my country’s financial risk disposal practices and taking into account the experience and lessons of the international community in building a financial safety net. In fact, major developed economies, represented by the US Orderly Liquidation Fund and the EU Single Resolution Fund, have established financial stability guarantee funds with similar functions.
Where does the money come from? According to the draft for comments, the Financial Stability Guarantee Fund consists of funds raised from financial institutions, financial infrastructure and other entities, as well as other funds specified by the State Council. When necessary, public funds such as PBOC re-lending can be used to provide liquidity support for the financial stability assurance fund, which should be repaid with disposal proceeds, proceeds, and industry charges.
Lou Feipeng believes that clarifying the management, nature and source of funds of the financial stability guarantee fund through legal forms, as well as the operation mechanism of double-layer operation and coordination with the deposit insurance fund and the industry guarantee fund, will help to further expand the sources of funds for financial risk disposal. , to provide financial support for systemic financial risk response, further build my country’s financial safety net, and enhance my country’s ability to deal with major financial risks. At the same time, it is clear that the State Council stipulates the specific methods for the raising, management and use of the financial stability guarantee fund, leaving institutional space for further exerting the role of the financial stability guarantee fund in the future.
Some experts pointed out that the establishment of a financial stability guarantee fund will help maintain the smooth operation of my country’s financial system around the clock. At the same time, the establishment of a financial stability guarantee fund by appropriately raising funds from financial institutions and financial infrastructure will not affect the current ability of the financial industry to serve the real economy, but also prevent risk spillovers caused by the failure of individual institutions to ensure the continuity of financial services.
Market-based legalization of risk disposal
The spillover and suddenness of financial risks are strong, and the timeliness of risk disposal work is highly demanded. Therefore, it is necessary to give the disposal department the corresponding legal authorization, so that it can take necessary measures according to the specific situation, deal with risks in an efficient and orderly manner, maintain the key financial services and functions of the disposal institution without interruption, and prevent the spread of risk contagion and cause more damage. influence.
Against this background, the Draft for Comments, on the basis of fully summarizing existing legal provisions and previous risk disposal practices, reasonably draws on international standards and experience, and stipulates a series of disposal measures. For example, the implementation of reorganization, takeover, trusteeship, etc. in accordance with the law, exercise the operation and management rights of the disposed institution, transfer assets and liabilities as a whole, order the replacement of the main responsible personnel and recover performance compensation, implement equity, debt write-down and debt-to-equity swap, and suspend the disposal. The institution sends funds overseas or requests the repatriation of overseas assets, and requires other institutions in the group to which the systemically important institution to be disposed of to provide necessary support, etc.
To deal with financial risks, it is necessary to abide by the spirit of the contract and fairly protect the legitimate rights and interests of all parties. The draft for comments clarifies the principle of creditors and relevant stakeholders that “the income from risk disposal shall not be lower than the income from bankruptcy liquidation”. At the same time, with reference to international practices, new disposal tools such as the overall transfer of assets and liabilities, the establishment of bridge banks and special-purpose vehicles, and the suspension and termination of net settlement are added. In accordance with the principle of marketization and rule of law, it is clarified that the disposal institutions can implement equity, debt write-down and debt-to-equity swaps in accordance with the law, and share disposal costs. Clarify the write-down order of equity and creditor’s rights, and protect the legitimate rights and interests of shareholders, creditors and relevant stakeholders.
Lou Feipeng believes that the establishment of institutional arrangements for financial risk prevention, resolution and disposal, and the establishment of a market-oriented and legalized disposal mechanism will help complement existing laws and regulations, fill in the fuzzy areas and blank areas in financial stability work, and further improve my country’s Financial safety net.
Wen Bin said that as the core law of my country’s financial stability, the draft for comments further consolidates the main responsibilities of financial institutions and their major shareholders and actual controllers, the territorial responsibilities of local governments and the supervision responsibilities of financial regulatory authorities; Risk prevention and early correction to achieve early risk detection and early intervention; promote the establishment of a market-oriented and legalized disposal mechanism, clarify the source and use of disposal funds, improve disposal measures and tools, and protect the legitimate rights and interests of market players; strengthen responsibility for violations of laws and regulations In order to further build a financial safety net and resolutely defend the bottom line of no systemic financial risks.
Wen Bin believes that, on the whole, the draft for comments is in line with the reality of my country’s financial development, hits the key points of financial risk prevention and resolution, effectively consolidates the legal foundation of my country’s financial stability, and helps to improve the financial stability supervision system covering the whole market, and improve unified coordination. The new financial risk prevention and resolution mechanism has effectively promoted the legalization and normalization of my country’s financial risk prevention and resolution work in the new era, and effectively maintained financial security and stability. (Economic Daily reporter Chen Guojing)
(Editor: Wen Jing)