China Mulls Three Bank Laws

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Last updated at: (Beijing Time) Saturday, August 23, 2003

China Mulls Three Bank Laws

Amendment drafts of two major banking laws and a draft of China's first bank supervision law were on the table for discussion by China's top legislature Friday.

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Amendment drafts of two major banking laws and a draft of China's first bank supervision law were on the table for discussion by China's top legislature Friday.

Amendment drafts of the Law on the People's Bank of China and the Law on Commercial Banks, as well as a bank supervision law draft will be first discussed at the fourth session of the Tenth National People's Congress (NPC) Standing Committee, in session from Friday to Aug. 27.

The amendment draft of the Law on the People's Bank of China, China's central bank, highlights the central bank's role in the macro-economy, especially in the sphere of currency policies, said Zhou Xiaochuan, governor of the central bank, who explained the law amendment draft to NPC legislators.

The draft recommends that the central bank's currency policy committee play a more important role in steering the country's macro-economy, especially its currency policy.

Meanwhile it deletes items concerning the central bank's supervision and regulation of banks and financial institutions, as the country has already set up another new watchdog, the China Banking Regulatory Commission (CBRC).

Although the top legislature has authorized the CBRC to supervise the banking industry, which was once done by the central bank, the bills have to be amended to confirm the legal position of the newly-found commission, said CBRC Chairman Liu Mingkang.

The bank supervision law draft, the first of its kind in China, indicates a major change in China's banking supervision policies --from simply monitoring the legitimacy of operation to putting equal importance on both legitimacy and risk control, said Liu.

The draft has introduced some of the Basle Core Principles for Effective Banking Supervision put forward by the Basle Committee on Banking Supervision, sponsored by the Bank for International Settlements.

Under the draft law, the CBRC shall set up effective guidelines to minimize financial risks for commercial banks and exercise cross-border banking supervision together with bank watchdogs of other countries and regions.

The amendment draft of the Law on Commercial Banks has also borrowed some Basle Core Principles, including the setting up of internal risk management systems.

Being independent, profit-seeking businesses, state-owned commercial banks will no longer be required to grant policy-oriented loans at the request of the government, according to the draft amendment.

At the moment, state-owned commercial banks receive compensation from the State Council if losses result from the policy-oriented loans.

The draft amendment loosens the limits on investments by commercial banks, in a bid to meet the needs of the rapidly growing banking sector, Liu said.

The present law bans commercial banks from investing in non-financial institutions or enterprises, or running securities or credit businesses.

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