New rules issued on interbank business in China

The financial regulator in China has issued rules to enhance and improve interbank business in order to contain financial risks and to direct more capital into real economy.

The regular, the central People's Bank of China, issued 18 rules this time.

In a separate statement, the central bank said: "In recent years, the interbank business of commercial banks has grown quickly, and some banks are conducting their businesses in ways that do not conform to standards."

Innovation and rapid growth in interbank businesses have played an important role in facilitating liquidity management, improving financial resources allocation and supporting the real economy, according to the central bank statement.

Under the new rules, stricter accounting standards and risk control measures for interbank business would be applied.

Moreover, the new rules also regulate that banks will not be able to accept third party guarantee for interbank business and the interbank borrowing period is restricted to three years.

Zeng Gang, a senior bank researcher at the Chinese Academy of Social Sciences, said this is a good thing in the long run since banks are getting messy and many risks are being hidden.

"Under the new rules, loans disguised by some banks as interbank business to avoid supervision will now be listed as on-balance-sheet items," he said.