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MNI INTERVIEW: China Needs Financial Insolvency Law: PBOC Offl

MNI (London)
--Need For Beijing To Legislate For Financial Firm Bankruptcies: Bai
     BEIJING (MNI) - China urgently needs to pass legislation allowing financial
institutions to go bankrupt if it is to proceed with market-oriented interest
rate reform, improve financial market competition, minimize risks and protect
investor interests, a People's Bank of China official told MNI in an interview.
     "Considering the complexity and spillover risks from the collapse of a
financial institution, this law needs to be enacted as soon as possible," said
Bai Hexiang, a delegate at the 13th National People's Congress and the president
of the PBOC's Guangzhou branch.
     The current clause on financial institutions in China's Enterprise
Bankruptcy Law is not operational for the bankruptcy of financial institutions
in practice. As a result, when financial institutions have run into difficulty,
authorities have attempted to limit the impact on their clients and
counterparties by pushing them into reorganisations or mergers, a procedure
which is inefficient and expensive, Bai said.
     Policy makers have reached consensus on the need for bankruptcy proceedings
to cover financial institutions, as China continues to move towards gradual
market-oriented reform, Bai noted, adding that current rules on deposit
insurance cannot cover financial institutions other than banks.
     Last month, the China Banking and Insurance Regulatory Commission,the top
banking and insurance regulator, said it would allow certain, particularly small
and medium-sized, institutions, to pilot a bankruptcy mechanism.
     Bankruptcy procedures, including provisions for courts to dispose of
assets, will better protect investors and enhance the stability of the financial
system, particularly of the banking system, which is riddled with information
asymmetry and moral hazard, Bai said.
     "It is also a requirement of market-oriented interest rate reform," Bai
noted, explaining that more market-based interest rates will make competition
fiercer and increase uncertainty over liquidity.
--MNI Beijing Bureau; +86 (10) 8532 5998; email: marissa.wang@marketnews.com
--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com
[TOPICS: MT$$$$,MX$$$$]
MNI London Bureau | +44 203-865-3812 | les.commons@marketnews.com
MNI London Bureau | +44 203-865-3812 | les.commons@marketnews.com

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