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China Banking Improves Risk Management, IMF-World Bank Staff Say

China’s banking system has made “significant improvements” in risk measurement and management, a report released by the International Monetary Fund said today.

The “activist, forward-looking” China Banking Regulatory Commission led the progress, which is supported by requirements for high-quality capital and liquidity, according to a report by a staff team of the IMF and the World Bank.

“However, as further opening up and innovation occurs, and China’s banks expand, complexity and risks will increase,” the staff report said. “CBRC and banks must evolve quickly in the short term to be ready to meet those challenges. The framework of laws and guidance is generally of high quality, but much of it is relatively recent.”

The regulators should also seek more experience and expertise to manage risks and need “continued support” from the government, the IMF-World Bank staff report said.

“Enhanced vigilance is required by banks and the regulator to keep risks under control in China’s system, in which banks are looked on by the state to be heavily, directly involved in achieving economic and social goals,” the staff team said.

The IMF said it was releasing the report as part of the review of China under the Financial Sector Assessment Program.

The China Insurance Regulatory Commission, which oversees providers of property-casualty and life coverage, needs to do more to monitor money-laundering, according to another section of the report.

CIRC should “review its current arrangement with People’s Bank of China -- PBC -- on fighting money-laundering,” according to the document. “The shared responsibilities are not reflected in the activities carried out solely by PBC. The lack of adequate reporting back to CIRC is not acceptable and bears a reputational risk for CIRC.”

To contact the reporters on this story: Alex Kowalski in Washington at akowalski13@bloomberg.net; Noah Buhayar in New York at nbuhayar@bloomberg.net.

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net; Dan Kraut at dkraut2@bloomberg.net

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