People's Bank of China (PBOC) Gov. Pan Gongsheng proposed a facility for large investor redemptions at nonbank institutions, seeking to prevent bond sales from spurring further redemptions.
Pan presented the proposal Oct. 19 at Beijing's Financial Street Forum. The PBOC intends to establish the facility jointly with the China Securities Regulatory Commission and National Financial Regulatory Administration.
Pan described collective liquidity stress at asset managers: investor redemptions can lead them to sell bonds, and those sales can prompt more redemptions. The proposed facility would be available to bank wealth management subsidiaries, public fund managers and their parent banks or securities firms. Institutions seeking funds would have to meet macroprudential conditions and provide high-grade collateral. Pan said the safeguards are intended to limit systemic risk while guarding against moral hazard.
The central bank also intends to broaden its Standing Lending Facility, which supplies collateralized short-term funding mainly to city commercial banks and rural financial institutions. Locally incorporated foreign banks would gain access, and nationwide banks would come under the same arrangements. Pan said the change would extend the facility across deposit-taking institutions in China.
Under a separate pilot, eight offshore renminbi clearing banks, Chinese-owned and foreign-owned, could conduct proprietary trades in China's onshore interbank foreign-exchange market. The permission would apply solely to those banks' own-account trades.
The PBOC also plans to connect China's interbank and exchange bond markets after infrastructure operators and market participants complete testing. It will set out the liquidity facility's operating terms in an open market operations notice.
