Others News
- Market to approve financial products
Date: 4-Sep-2007 Sources: (Shenzhen Daily)
THE government will streamline the introduction of new financial instruments, giving a newly established industry association authority to approve the launch of new products, the central bank chief said yesterday.
Sluggish market innovation is one of the obstacles slowing China's financial reforms because policymakers worry that, faced with a dearth of risk-hedging tools, banks might not be able to weather potential pitfalls.
The National Association of Financial Market Institutional Investors, composed of all member institutions of the interbank market, will take over the central bank's mandate to launch new products, said central bank governor Zhou Xiaochuan.
'(These new products) on the interbank market need only be registered with the association and then reported to the regulatory administration. No government examination and approval is required,'Zhou told the inaugural meeting of the association.
In the past, the People's Bank of China, the central bank, generally guided commercial banks to launch new products.
That top-down approach sometimes resulted in the introduction of products that were not really needed by commercial banks, said an analyst at a State-owned bank.
For example, when some lenders launched mortgage-backed securities in late 2005, they did so more in response to the central bank's calls for innovation than out of their own needs, the analyst said.
'Actually, Chinese banks have little incentive to securitize their mortgages because such loans are high quality and have very low nonperforming ratios,'he added.
Zhou conceded that the old scheme hampered innovation and that market players should serve as the driving force behind the creation of new products.
The new system would be a good platform and would definitely accelerate the introduction of products that the market needs urgently, the analyst said. But he noted that authorities would still exert some influence over the procedures for some time to come.
The new association is currently chaired by Li Lihui, president of Bank of China, with the central bank providing oversight.
Zhou said that the value of outstanding bonds traded in the interbank market reached 10.48 trillion yuan (US$1.4 trillion) at the end of Aug., 25 times that at the end of 1997.
Further, the number of institutions participating in the interbank market had reached 7,137 by the end of August, 446 times that at the end of 1997, he added.
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