In Sweeping $43 Trillion Overhaul, China Merges Banking And Insurance Regulators

Confirming previous reports, overnight Caixin announced that China plans to merge the banking (CBRC) and insurance regulators (CIRC) and to form a new agency called China Banking and Insurance Regulatory Commission (CBIRC) in the biggest industry overhaul since 2003.  Meanwhile, the CBIRC will hand its central bank the power to write the rules for the financial sector, as part of a sweeping overhaul aimed at closing regulatory loopholes and curbing risk in the $43 trillion banking and insurance industries.

As Bloomberg notes, a new regulatory structure with the PBOC as the pivot is emerging as the annual legislative meetings progress through their second week. Still to come (see below) are personnel appointments, including the expected anointment for Politburo member Liu He as a Vice Premier in charge of financial and economic affairs, making him President Xi Jinping’s go-to official as he seeks to avert a financial crisis after years of rapid credit growth.

“The PBOC has more power: It has added the role of lawmaking to its previous role as the adviser on monetary policy,” said Zhou Hao, an economist at Commerzbank AG in Singapore. “The PBOC’s role will largely be policy making and the newly merged bank and insurance regulator will mainly be the policy executor. And the other thing for sure is that Liu He will play a more important role in China’s reforms.”

This is a further step to strengthen the coordination among regulators. A merged agency should be able to fix regulatory loopholes and strengthen the “look through” ability, which should reduce regulatory arbitrage. The merger is rather easier to complete, as regulatory oversights on banks and insurers are mainly rooted on capital adequacy.

And, as Deutsche Bank notes, it also suggests more clear responsibilities among agencies. The central bank is empowered with greater authority of policy formation and macroprudential oversights, while the CBIRC and existing CSRC mainly focus on micro-prudential for individual institutions. The PBOC, CBIRC and CSRC are all under oversights of Financial Stability and Development Committee (FSDC).

The nature of this restructuring is mainly about streamlining functions to alleviate two problems: the first being that multiple government agencies are in charge of the same issue which creates inefficiencies, and the second being there can be limited oversight on some issues, especially regulatory arbitrage in the financial sector.

While the total number of ministerial level and deputy ministerial level government institutions was reduced, this change is not of the same scale as the government restructuring in the late 1990s which massively reduced the number of government ministries, officials and functions.

Goldman notes that the merger of the banking and insurance regulators (CBRC and CIRC) was confirmed and has long been expected. So the real news is more about what did not happen: the CSRC did not merge with the CBRC and CIRC to form a “super regulator” as speculated by some media. Instead, the rationale is likely because the CSRC is regulating the market and the merged banking and insurance regulator will regulate institutions. Mergers of ministries are always difficult as it will imply fewer senior positions. Nevertheless this new regulatory body is more powerful than any of the regulators before, in our view. Besides the merger of banking and insurance regulators, drafting banking and insurance regulation is now part of PBOC's responsibilities, according to the plan.

The impact of this restructuring on the PBOC is mixed. On the one hand the central bank has been given more macro prudential responsibilities. But on the other hand, the increased influence is relative as the creation of a large regulator adds to a counterweight in the government.

The reduction of regulatory arbitrage opportunities is a new policy direction. Whether this is a positive for the long term development depends on how the government uses this power. If this is coupled with pro market reforms it will be a positive in our view. If it is coupled with conservative policies and less financial liberalization, it may lead to greater financial repression in our view.

The restructuring plan also streamlines responsibilities in other areas such as market supervision, environmental protection.

What is next? Here are some thoughts from Deutsche Bank:

  1. The key personnel of the new regulatory framework is likely to be determined soon. Reuters reported Liu He is likely to be Head of FSDC and Governor of PBOC in the same time.
  2. Local financial regulators will be empowered further.
  3. Regulators are likely to further hike market rates, issue/implement new regulations and crack down shadow banking, internet finance and financial holding companies.

Implications for the financial sector would be positive, with more coordinated actions, rising transparency and lower leverage. The change would benefit deposit-funded banks (big four, PSBC and CRCB), while wholesale-funded, shadow-banking-centric bans would suffer, resulting in a further slowdown in shadow banking credit creation.

Ultimately, this is what China's regulatory framework is expected to look like.


JibjeResearch Four Star Tue, 03/13/2018 - 09:32 Permalink

The short and medium terms are true, but China thinks long term; thus, the article is short coming for long term.

China wants the Belt and Road Initiative to be the paths for resources to come in while the Yuan goes out.  The world will have Yuan, but those Yuan will return to China in bonds.  This is just like the USA system.


The future is the PetroDollar vs the Petro/Gold Yuan.  The P-G Yuan will have an advantage because of the BRI and neutral feeling from around the world.

We the USA will learn a lesson of why being hated on is a bad thing.

In reply to by Four Star

peopledontwanttruth kralizec Tue, 03/13/2018 - 08:47 Permalink

As long as man with his imperfections and the love of money being the root of all evil this will prove to be disastrous in the end to.   We'll find that there will be a lot of back scratching going on within the two emerging facilities to cover their greed.  

Theres no such thing as transparentcy in the financial markets.  Just loop holes for the privledged criminals to get even more. 

In reply to by kralizec

Pliskin Tue, 03/13/2018 - 08:35 Permalink

Don't worry about this folks, because Kyle Bass (And Yen Cross) both said that China was going to collapse in the next six months, they said this in 2014!!



nmewn Tue, 03/13/2018 - 08:37 Permalink

The Chi-Com bureacracies for banking & insurance were so vast they had to be merged.

Does that perpetual commie lover over at the NYT's (Thomas Friedman) know about this? ;-)

LawsofPhysics Tue, 03/13/2018 - 08:39 Permalink

Wake the fuck up people. China has been printing "money" and acquiring real shit and productive capacity faster than anyone else. The Fed is fully aware of the situation and green with envy! Global Weimar is on motherfuckers!

"Full Faith and Credit"

same as it ever was!

ZENDOG Tue, 03/13/2018 - 08:44 Permalink

What a great Idea,,,,,let'a merge the Banking Industry and the Insurance Industry Regulators together here in the U.S.,,,,,then we can be assured we will be taken care of in our old age. HAHAHAHAHAHHAHAHAH!

MusicIsYou Tue, 03/13/2018 - 08:53 Permalink

Well then so basically China is just making the last few required steps before it rolls out the Yaun as a Reserve Currency. Wow it's just amazing how a full page news article can be simplified into just a sentence. No wonder the West is so fcked up.

VAL THOR Tue, 03/13/2018 - 08:55 Permalink

$43T?  Big deal.  Just wait until they merge all their fast-food joints!  Then we talking real money!

Twice cooked Benjamins, any one?

JibjeResearch Tue, 03/13/2018 - 09:26 Permalink

China wants a centralized gold standard.  You guys will see repression against cryptos.


To defeat China ( and all centralized planners = evil), citizens must learn and support decentralized cryptocurrencies if we want freedom.


Batman11 Tue, 03/13/2018 - 11:42 Permalink

“The Next Financial Crisis” was one of the forums at Davos.

One of the Chinese regulators is there and they have learnt lessons from 2008 that have escaped us in the West. They have seen their Minsky Moment coming unlike the West in 2008, and they have identified the debt-to-GDP ratio and over inflated asset prices as causes of these financial crises.

1929 and 2008 stick out like sore thumbs.

It was obvious all along and could be seen building years in advance.

We can’t keep messing about; the Chinese have worked it out.