Risk Inflation: China Will Welcome A New Era Of Regulatory Coordination In The Future.

Due to the disunity of regulatory standards, regulatory arbitrage has become the norm.

What is more obvious is that in order to evade regulation, banks pfer a lot of business to the off balance sheet.

In addition, through license control business development, there has also been a regulatory vacuum. Some newly emerged financial businesses have not yet received licences. The regulatory body is unknown, leading to mutual evasions and regulatory vacuum.

Banks and trusts are investing in real estate and local financing platforms through channel businesses.

The leap forward development of trust scale has benefited from the "bank credit cooperation" mode, and channel businesses bypass regulation to finance real estate and infrastructure projects.

In particular, at the end of 2008, the "four trillion stimulus plan" was launched. Local governments, real estate enterprises and business enterprises had strong financing needs, which provided a golden opportunity for the explosive development of bank credit cooperative business.

In December 4, 2008, the CBRC issued the guidelines for business cooperation between banks and trust companies, which means that the bank credit financing mode was approved by the regulatory authorities.

The regulatory arbitrage mode of bank credit cooperation is: on the one hand, trust companies do not need to invest much resources in channel business, but only let commercial banks borrow their trust channels to develop business. Trust companies are equivalent to net passageway fees, and they can also rely on bank resources to expand assets rapidly.

On the other hand, commercial banks can not only have more investment channels, but also avoid regulation by pferring the trust channel, and pfer the assets in the table to the table and rapidly expand the total assets scale.

Take the channel business of bank and fund subsidiary cooperation as an example, from the perspective of management, there are two main functions of channel business: one is to invest funds in restrictive industries to evade supervision, and the other is to turn assets from the table to the off balance sheet. Two

Through this way, commercial banks pfer assets to the off balance sheet, reduce capital constraint requirements and optimize the assets and liabilities structure of banks.

Fund subsidiaries, brokerages, information management and trust help banks carry out regulatory arbitrage, which brings the risk of financial risk inflation and runaway.

The hidden risks of fund subsidiaries are: avoiding supervision, unclear responsibilities, low capital, high leverage, channel business pfer management responsibilities, and inadequate wind control measures.

Channel businesses and non-standard businesses have evaded regulation, pferring the assets in the table to the restricted industries, resulting in the rise of financial risks and the decline in the efficiency of macroeconomic regulation and control, resulting in the rapid expansion of credit scale and the accumulation of financial risks in the whole society.

Although the fund subsidiary is not responsible for the specific project management in the channel business, there is a problem of unidentified responsibilities with the Bank of the principal, which leads to the huge cash risk of the fund subsidiary.

The risk of securities business management is concentrated in the regulatory arbitrage in the channel business and the liquidity risk in the capital pool business.

The essence of brokers' channel business is financing driven shadow banking, which is a tool for banks to improve lending ability, optimize the structure of bank balance sheets, break the limitation of loan scale and expand off balance sheet assets.

And the business of capital pool is the arbitrage tool in the background of financial liberalization and monetary easing. The advantage of the business is "mixed operation" and "separation pricing", but at the same time it is also a source of risk, which ultimately shows liquidity risk.

There are great risks in the operation of the bank's credit cooperative channel: one is to evade regulation and accumulate risks; the two is to bypass the restrictions of credit policies and affect the effect of macroeconomic regulation and control.

Because of the lack of coordination between China's financial supervision departments, in the wave of financial innovation and liberalization 16 years ago, the financial regulatory authorities were competing for the business innovation and development of financial institutions.

In December 4, 2008, issuing the guidelines on cooperation between banks and trust companies means that the bank credit fund cooperation mode has been approved by the regulatory authorities, providing a golden opportunity for the explosive development of bank credit cooperative business.

In October 2012, the "two rules of one law" made a milestone relaxation for the securities and information management business of the securities and Futures Commission: in October 2012, the administrative examination and approval system of the collection management plan was changed to the issuing system; the scope of investment was extended, and the stock rights, creditor's rights and assets of the non-listed company were increased on the basis of stock, bond, fund, stock index futures and other securities varieties, and the proportion of investment restrictions on small collection and directional investment was abolished.

April 2017 334 special inspection.

In the 4 month of 2017, the implementation plan of the supervision and classification of trust business was issued.

In April 2017, we proposed restrictions on product pool size and investment scope for the capital pool business (not to invest in private debt, asset securitization products, high-yield credit bonds, low rated bonds and long term funds).

Such as poor products such as pledge products, control of duration mismatch, and control of multiple levers.

In May 2017, the first comprehensive prohibition business was introduced, and it was emphasized that no management responsibility could be assigned.

The contradiction between China's financial mixed operation and separate supervision has become increasingly prominent. We expect to pform from institutional regulation to functional regulation in the future. Information management business will formulate unified standards, strengthen supervision and coordination, prevent regulatory arbitrage, and set up a higher level of regulatory coordination mechanism.

To meet the new era of financial regulation and coordination, a higher level of regulatory coordination mechanism is expected to be established.

In recent years, many risks have been exposed frequently in financial institutions, shadow banking and financial markets. In the future, it is expected to establish a "regulatory coordination" mechanism in financial regulation, strengthen supervision and coordination and prevent regulatory arbitrage.

The cooperation of banks with information management, fund subsidiaries, trusts and other banks, on the one hand, can meet the financial gap of the real economy, make up for the market failure, and have the necessity of its existence and development; on the other hand, under the circumstances that regulation can not follow up systematically, the policy carries out a lot of financial innovations in the name of service entities, increases the channels, extends the capital arbitrage chain, and promotes the lever level; the real economic return rate decreases, resulting in excess liquidity staying in the shadow banking system and the financial risk rising; and the shadow banking expansion has stimulated the real estate bubble and delayed the production capacity clearing.

With the convening of the national financial work conference, the strengthening of supervision and coordination, and the unification of the new regulations, the supervision of shadow banking in the future will be carried out in accordance with uniform standards, elimination of arbitrage, penetration of supervision, breaking of rigid exchanges, gradual rectification and standardized statistics.

Through the coordinated promotion of financial reform and substantive reform, the combination of macro Prudential and micro prudential supervision, the shadow banking is expected to clear up, and standardize and specialize asset securitization services to revitalize stock credit funds, enhance the efficiency of financial integration, and effectively serve the real economy.

China's financial regulatory system will shift from separate supervision and institutional regulation to functional regulation.

Functional regulation is a radical solution. On the one hand, functional regulation can eliminate the "regulatory vacuum" brought about by financial innovation, and on the other hand, it can reduce the "regulatory arbitrage" caused by the disunity of regulatory standards.

To move towards a functional regulatory framework, we need to do more than a simple one party, three meeting merger, and we need to change the functions of legislation, one line, three functions and regulatory philosophy.

Functional supervision is based on the nature of the operation of the business to divide the regulatory object of the financial supervision mode, for example, the financial business is divided into banking, securities business and insurance business, regulatory agencies to supervise business, regardless of the nature of the institutions engaged in these business operations.

The advantage lies in: the coordination of supervision is high, the problems found in supervision can be handled and solved in time; the overall risk of financial institutions' assets portfolio is easy to be judged; it can avoid duplication and cross supervision phenomenon, and create a fair competition market environment for financial institutions.

Since the financial crisis in 2008, the supervision and coordination of various countries have been strengthened, and the central bank has received the power of macro prudential supervision.

The exploration and innovation of China's macro Prudential policy has taken the lead in the world. Macro prudential supervision has gradually landed and improved in China, and the central bank's regulatory function has been continuously strengthened.

According to Caixin and other media reports, in July, the national financial work conference will strengthen financial supervision and coordination, set up a financial Coordination Committee on the basis of "one line and three meetings", and the office of the Coordination Committee is located in the central bank, so as to effectively play the leading role of the central bank in macro Prudential Management.

Since 2016, China has upgraded the differential reserve dynamic adjustment mechanism to the macro Prudential evaluation system (MPA). It has conducted a multi-dimensional guidance from the aspects of capital and leverage, asset liability, liquidity, pricing behavior, asset quality, cross-border financing risks, and credit policy implementation. In the real sense, the two pillar regulatory framework of "monetary policy + macro Prudential policy" has been implemented. The two complement and strengthen each other, aiming at deepening the structural reform of supply side, guarding against systemic risks, and guiding financial capital to real enterprises.

What is more severe is that the central bank began to formally incorporate off balance sheet financing into the scope of generalized credit in the first quarter of 2017. The expansion of off balance sheet financing will be directly regulated by the central bank, which will guide financial institutions to strengthen the management of off balance sheet business risks.

This further demonstrates the policy intentions of regulators to leverage and strictly regulate.

Unified regulatory standards are the trend of the times and the precondition for eliminating regulatory arbitrage.

In the information management industry, the unified supervision standard of information management business is conducive to mastering the real risk portfolio and asset allocation of information management institutions, enhancing the execution and supervision efficiency of regulatory policies, preventing regulatory arbitrage, strengthening macro Prudential Management, guiding the funds to be false and real, and preventing systemic financial risks.

In July 4, 2017, the Central Bank of China issued the report on China's financial stability in 2017. In the form of special topics, the business types, modes of cooperation, problems and directions for future development of the information management industry were discussed in detail.

In accordance with the unified supervision standard of information management, we need to classify and standardize the regulations and gradually eliminate the arbitrage space.

We should establish a macro Prudential policy framework for asset management business, improve policy tools, and strengthen monitoring from macro, reverse and cross market perspectives. At the same time, we should apply the same standard to similar products, strengthen functional supervision and pparent supervision.

In order to curb the risk pmission of product nesting.

Strengthen the accounting and accounting requirements, match the product with the duration of the investment assets, and unify the leverage ratio of the similar products.

For all kinds of financial institutions, we should implement equal access to assets management business, give fair treatment, restrict nesting behavior under different levels of entrustment, and curb channel business.

Strengthen the management of "non standard" business and prevent shadow banking risks.

The establishment of a comprehensive statistical system provides a fundamental basis for penetrating supervision.

The regulation of shadow banking in the future will be carried out in accordance with uniform standards, elimination of arbitrage, penetration of supervision, breaking of rigid exchanges, gradual rectification and standardized statistics.

Compared with the guidance on standardizing financial institutions' asset management business in February 21st (Draft), policy thinking has maintained consistency, but there has been a significant reduction in the differences between regulators.

The solution proposed by China's financial stability report basically covers the opinions, which is consistent with the policy ideas since 2016.

Previously, the new regulations were mainly promoted from the aspects of risk prevention, service entity economy, macro and micro supervision.

The rules of the opinions give instructions to the industry's key issues.

First, we must break the rigid payment, followed by limiting the investment of non-standard assets, and point out that we need unified leverage requirements.

We should further strengthen communication and coordination among regulatory departments, promote the coordination of capital supervision standards in different sectors of the same business, promote fair competition in the market, and prevent regulatory arbitrage.

In July 4, 2017, the Central Bank of China issued the "China financial stability report" in 2017, calling for the risk of shadow banking. We should establish a macro Prudential policy framework for asset management business, improve policy instruments, and strengthen monitoring, evaluation and regulation from the macro, counter cyclical and cross market perspectives.

At the same time, in view of the standard differences under institutional supervision, we should strengthen functional supervision and penetrative supervision. Similar products apply the same standard, eliminate arbitrage space, and effectively curb the risk pmission caused by product nesting.

In April 2017, the CBRC issued "the key points of special management of regulatory arbitrage, idle arbitrage and associated arbitrage" of banking financial institutions. It clearly pointed out that regulatory arbitrage is the Arbitrage Behavior of financial institutions in banking industry to obtain profits through violation of regulatory system or regulatory requirements. Idle arbitrage refers to Arbitrage Behavior that financial institutions of banks make funds flow through the financial system through various businesses but not flow to the real economy or flow to the real economy after extending the financing chain, and the related arbitrage refers to the Arbitrage Behavior of banking financial institutions that circumvent regulatory interests through the design of paction structure, fuzzy correlation and paction background.

The elimination of regulatory arbitrage is mainly to eliminate: 1) circumvent regulatory arbitrage, including credit risk index, capital adequacy index and liquidity index; 2) circumvent regulatory policy arbitrage, including arbitrage, violation of risk management policy arbitrage, and illegitimacy.

Arbitrage, increasing financing costs, arbitrage and so on.

The era of unified supervision of big capital management industry is coming: ending regulatory arbitrage.

In February 21, 2017, it issued the guiding opinions on standardizing the asset management business of financial institutions (Draft).

In July 4th, the central bank issued the "report on China's financial stability in 2017". The theme is "promoting the healthy development of China's asset management business". It calls for the solution of problems from unified supervision: classification and unified standard regulation, the establishment of a penetrating regulatory framework and macro Prudential framework; breaking the rigid payment, reducing the expected yield products; improving independent account management, controlling the leverage level of stock market debt market; eliminating nesting and restraining channel business; controlling and gradually reducing non-standard businesses and preventing shadow banking risks; establishing a comprehensive statistical system, recording product information, and conducting pparent supervision.

In the future, the growth rate of financial leverage can be reduced, and the leverage is not removed, because finance is natural and leveraged.

According to the Reuters, Li Keqiang has recently stressed the importance of "stable financial operation" in the Symposium of experts and entrepreneurs in the economic situation. The central bank's media financial times read that "financial stability is the stability of financial leverage", and policy guidance has been leveraged from financial to stable leverage.

Yi Gang also said recently that "leveraging is the first stable lever", and the growth rate of leverage has been reduced.

In the first half of 2017, financial leverage has achieved some success. In June, M2 growth fell below 10% to 9.4%.

In the first half of the year, the central bank pushed down excessive leveraged financial institutions by means of "monetary policy + macro Prudential policy". The CBRC issued a series of heavy regulatory documents for overexpansion and irregularities and launched on-site inspections. Financial institutions' leverage operations, interbank expansion and regulatory arbitrage have been restrained.

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