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China Orders Banks to Limit Any Risk From Entrusted Loan Business

  • Banks must ensure they only act as intermediaries, CBRC says
  • Entrusted loans pose ‘certain potential risk hazards’
A man rides a bicycle along the Bund while buildings of Pudong's Lujiazui financial district stand across the Huangpu River as the sun rises in Shanghai, China, on Friday, Oct. 2, 2015. 

Photographer: Qilai Shen/Bloomberg

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China took another step to clamp down on leverage in the financial system, ordering banks to ensure they aren’t exposed to risks from their entrusted loan business.

Banks can only act as intermediaries when arranging entrusted loans, and must not provide guarantees or get involved in decision-making, according to new rules posted in a statement on the China Banking Regulatory Commission’s website over the weekend.