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China will curb shadow banking

China is going to drastically tighten supervision over fund houses’ subsidiaries and cool the expansion of the sector worth almost 10 trillion Yuan as regulators target a major channel for shadow banking to reduce financial risks, according to Reuters.       

The Asset Management Association of China is going to set thresholds for fund houses in order to establish subsidiaries and also make use of capital ratios just to restrict the subsidiaries’ ability to expand their businesses.    

AMAC stood away from commenting this move when contacted by telephone and fax.

Loosely-regulated subsidiaries established by mutual fund companies have grown rapidly for the last year. The subsidiaries managed up to 9.8 trillion Yuan worth of assets close to the end of March and turning into a suitable channel for shadow banking activities.

According to the newly proposed rules, fund houses applying to create subsidiaries will be obliged to managed at least 20 billion Yuan in assets, except money-market funds. Furthermore, they must have at least 600 million Yuan in net assets. As for current thresholds, they’re much lower.              

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