In recent years, virtual currencies, especially stablecoins, issued by market institutions have continued to emerge, but as a whole, they are still in the early stages of development. International financial organizations, central banks and other financial management departments generally hold a cautious attitude towards the development of stablecoins. Ten days ago, at the IMF/World Bank Annual Meetings in Washington, D.C., stablecoins and the potential financial risks they pose were among the most discussed topics by finance ministers and central bank governors. The prevailing view was that stablecoins, as a financial activity, currently fail to effectively meet basic requirements for customer identification and anti-money laundering, amplifying loopholes in global financial regulation, such as money laundering, illegal cross-border fund transfers, and terrorist financing. This has fostered a strong atmosphere of market speculation, increasing the fragility of the global financial system and impacting the monetary sovereignty of some less-developed economies. Since 2017, the People's Bank of China, in conjunction with relevant departments, has issued a number of policy documents to prevent and address the risks of speculation in domestic virtual currency transactions, which remain in effect. Going forward, the People's Bank of China will work with law enforcement agencies to continue cracking down on the operation and speculation of virtual currencies in China, maintaining economic and financial order, while also closely monitoring and dynamically assessing the development of overseas stablecoins. Fourth, research and implement policy measures to support individuals in repairing their credit. The credit reporting system operated by the People's Bank of China is a critical piece of financial infrastructure. It records financial defaults by businesses and individuals and enables financial institutions to conduct inquiries and risk assessments when conducting business. For over 20 years, it has played a vital role in building my country's social credit system and preventing financial risks. According to the Regulations on the Administration of the Credit Reporting Industry, default records in the credit reporting system remain for five years. In recent years, due to force majeure, such as the COVID-19 pandemic, some individuals have defaulted on their debts. Although they have subsequently repaid the debts in full, the associated credit records continue to impact their economic lives. To help individuals repair their credit records faster while also strengthening the binding force of default credit records, the People's Bank of China is considering implementing a one-time personal credit relief policy. This policy will remove default information from the credit reporting system for individuals whose defaults since the pandemic are below a certain amount and whose loans have been repaid. This measure will be implemented early next year after the relevant procedures are completed, and the People's Bank of China will work with financial institutions to make the necessary technical preparations. The topic of my speech today is: The Construction Practice and Future Evolution of China's Macroprudential Management System. The 19th National Congress of the Communist Party of China proposed improving the dual-pillar regulatory framework of monetary policy and macroprudential policy. In recent years, we have made orderly progress and achieved significant progress. The just-concluded Fourth Plenary Session of the 20th Central Committee of the Communist Party of China further proposed building a scientific and sound monetary policy system and a comprehensive macroprudential management system. At the Lujiazui Forum last June, I gave a relatively systematic overview of the evolution of China's future monetary policy framework. Today, I would like to share with you some of my considerations on building a macroprudential management system. I. The Internal Logic of Macroprudential Management and China's Practice Following the 2008 international financial crisis, the international community conducted in-depth reflection on the causes and lessons of the crisis, recognizing that the soundness of individual financial institutions does not necessarily represent the overall soundness of the financial system. It is necessary to address the shortcomings of microprudential supervision, strengthen macroprudential policy responses, and prevent the procyclical accumulation of financial risks and the contagion across institutions, markets, sectors, and borders. Strengthening macroprudential management has been made a core component of international financial regulatory reform. Within the G20 framework, international organizations and major economies have made sustained efforts to establish and improve macroprudential management policy frameworks, reform and improve financial regulatory systems, and strengthen the monitoring and assessment of systemic financial risks. Central banks, as macroeconomic regulators and financial management agencies, and as lenders of last resort for the financial system, generally assume important responsibilities in the macroprudential management systems of various countries. After years of practice, a relatively operational macroprudential management system has been initially established globally. During the 2020 COVID-19 pandemic, in addition to implementing supportive monetary policies, major economies generally used macroprudential policy measures such as reducing countercyclical capital buffers and liquidity regulatory requirements to respond to major shocks. Following the pandemic, they pushed macroprudential policy stances back to neutrality, demonstrating significant flexibility, enhancing the resilience and soundness of the global financial system, and increasing the space and capacity for countercyclical adjustments. Monetary policy, macroprudential management, and microprudential supervision each have distinct focuses. Monetary policy primarily targets macroeconomic and aggregate demand management, smoothing economic cycle fluctuations through countercyclical adjustments and fostering a favorable monetary and financial environment for stable economic growth and the stable operation of financial markets. Microprudential supervision focuses on the sound operation of individual financial institutions, employing a variety of regulatory tools to promote their prudent and sound operations. Macroprudential management directly and centrally impacts the financial system itself, focusing on systemic risks, maintaining overall financial stability, and preventing or mitigating procyclical self-reinforcement and the contagion of risks across institutions and markets. From a trans-temporal perspective, procyclicality in the financial system is primarily curbed through dynamic countercyclical requirements on capital levels and leverage ratios. From a trans-spatial perspective, cross-institutional, cross-market, cross-sector, and cross-border risk contagion is primarily prevented and controlled through strengthened supervision of systemically important financial institutions and macroprudential management of financial markets. The three approaches share some overlap in terms of their tools, complementing each other. For example, capital adequacy ratio requirements are microprudential regulatory tools, while additional capital regulation is a macroprudential management tool. Provision coverage levels, based on accounting principles and the expected loss principle, are microprudential regulatory tools, while using provisions for countercyclical adjustments during economic and bank profit ups and downs is a macroprudential management tool. China's exploration and practice of macroprudential management began early. As early as 2003, China first introduced a minimum down payment ratio policy in the real estate finance sector. After the 2008 international financial crisis, China took the lead globally in establishing a macroprudential policy framework, gradually forming a macroprudential management practice path with Chinese characteristics. Regarding the governance mechanism of macroprudential management, we will strengthen the centralized and unified leadership of the Party Central Committee and enrich the macroprudential management functions of the People's Bank of China. At the interdepartmental level, in 2013, the State Council approved the People's Bank of China to lead the establishment of the Inter-Ministerial Joint Conference System for Financial Regulatory Coordination; in 2017, the State Council Financial and Economic Commission was established; and in 2023, the Central Financial and Economic Commission was established, gradually strengthening overall coordination. At the departmental level, the 2017 National Financial Work Conference and the institutional reform plan approved by the central government in early 2019 clarified the People's Bank of China's responsibilities for macroprudential management, spearheading the development of a macroprudential policy framework and establishing a Macroprudential Management Bureau. Regarding the macroprudential management policy system, the People's Bank of China has explored and advanced it from multiple perspectives. First, the 2021 release of the "Macroprudential Policy Guidelines" clarified the macroprudential management approach and policy framework. Second, the differentiated reserve requirement system was established in 2003, followed by the introduction of a dynamic adjustment mechanism in 2010. This was then upgraded to the Macroprudential Assessment (MPA) in 2016, linking credit supply to the capital levels of financial institutions and economic growth, effectively promoting stable monetary and credit growth. Third, a comprehensive regulatory framework for systemically important financial institutions was established and improved. In conjunction with financial regulatory authorities, the government issued the "Guiding Opinions on Improving the Supervision of Systemically Important Financial Institutions," the "Measures for Assessing Systemically Important Banks," the "Additional Regulatory Provisions for Systemically Important Banks," the "Measures for Managing the Total Loss-Absorbing Capacity of Global Systemically Important Banks," and the "Measures for Assessing Systemically Important Insurance Companies," implementing additional regulatory requirements and recovery and resolution plans for systemically important banks. Currently, China has five global systemically important banks and 20 domestic systemically important commercial banks, whose combined assets account for approximately 70% of the banking industry's total assets. Fourth, tools such as macroprudential adjustment parameters for cross-border financing were established to implement countercyclical adjustments to cross-border capital flows. Fifth, the government explored the implementation of macroprudential management in financial markets. Dynamically monitor and assess the performance of the bond market, strengthen risk warnings for financial institutions, and prevent or mitigate the accumulation of risks. In conjunction with the China Securities Regulatory Commission, establish two monetary policy tools to support the capital market. Uphold the market's decisive role in exchange rate formation, maintain the basic stability of the RMB exchange rate at a reasonable and balanced level, and guard against the risk of large fluctuations. Sixth, improve macro-prudential management of real estate finance. Dynamically adjust policy tools such as mortgage down payment ratios and mortgage interest rates. Seventh, establish a regulatory framework for financial holding companies and conduct market access and supervision of financial holding companies in accordance with the law. This work has been assigned to the State Administration of Financial Supervision. Eighth, strengthen the management of market expectations. When significant fluctuations occur in financial markets, proactively speak out to promptly correct the market's "herd effect" and firmly maintain the stability of financial markets, including the stock, bond, and foreign exchange markets.
By comparison, monetary policy is a traditional responsibility of central banks, and the institutional framework is relatively clear and mature. While macroprudential management has considerable global practice, it is relatively new and remains in the process of continuous exploration and improvement. The draft proposal for the 15th Five-Year Plan calls for the establishment of a comprehensive macroprudential management system. We consider the following key areas for this work.
First, better coverage of the relationship between macroeconomic operations and financial risks. High-quality macroeconomic development is the foundation for the stable operation of financial markets and the healthy operation of individual micro-financial institutions. We must closely monitor and assess macroeconomic trends, maintain a dynamic balance between economic growth, economic restructuring, and financial risk prevention at the macro level, consistently promote high-quality economic development, and prevent and resolve systemic financial risks at their source.
Second, better coverage of financial market operations. With the advancement of financial modernization, my country's financial system has gradually evolved from being dominated by traditional banking institutions to a multi-tiered modern financial market system, significantly increasing its complexity and interconnectedness. In line with the development and changes of the financial market, it is necessary to continuously expand the scope of macroprudential management and enhance the resilience of the financial system. Third, better cover systemically important financial institutions. Systemically important financial institutions are large in scale and highly interconnected, and if they become vulnerable, they can have significant spillover effects. In recent years, major economies have generally strengthened macroprudential management of systemically important financial institutions, gradually expanding coverage from the banking sector to the non-bank financial sector. Comprehensive assessments and identification of systemically important financial institutions, including banks and insurance companies, and financial infrastructure are necessary. Beyond conventional oversight, additional regulatory measures commensurate with their degree of systemic importance should be implemented. Fourth, better cover the spillover effects of risks in international economic and financial markets. With the increasing interconnectedness of global financial markets and the rapid dissemination of information, financial risks are more likely to spread across borders. At this year's IMF/World Bank Annual Meeting, there was considerable focus on government debt risks in major economies and their potential impact on global financial markets, and early risk warnings were strengthened. We need to maintain a good balance between internal and external equilibrium, and dynamically assess and effectively respond to the impacts of major economies' monetary policies, trade policies, sovereign debt risks, and geopolitics on the operation of my country's financial markets. Third, Accelerate the Establishment of a Comprehensive Macroprudential Management System
First, strengthen the monitoring and assessment system for systemic financial risks. Regarding monitoring, we will continue to enhance the dynamic monitoring capabilities of the National Financial Basic Database for risks in key sectors; fully leverage the role of the Interbank Market Transaction Reporting Database to frequently aggregate and monitor financial market transactions. Regarding assessments, the Macroprudential Assessment (MPA), established by the People's Bank of China in 2016, currently serves primarily monetary policy. We are considering splitting the MPA into two parts: one focused on assessing the implementation of monetary policy; the other on macroprudential and financial stability assessments to support macroprudential management. A preliminary plan has been developed, and we will communicate with financial institutions for further refinement before implementation. Secondly, we will improve and strengthen risk prevention measures for key institutions and sectors. We will strengthen additional supervision of systemically important banks, leveraging the role of countercyclical capital buffers, recovery and resolution plans, and other initiatives. We will publish a list of systemically important insurance companies in a timely manner to facilitate the implementation of additional supervision. We will expand the central bank's macroprudential management function to maintain financial market stability. We will focus on the leverage levels and maturity mismatches of financial institutions, promptly stemming the accumulation of liquidity and interest rate risks in financial markets and curbing the "herd effect" in financial markets. We will improve the regulation of financial market infrastructure and establish liquidity risk constraints and liquidity support mechanisms for central counterparties. We will continue to improve macroprudential management of cross-border capital flows, implement timely countercyclical regulatory measures based on the current situation, and maintain overall stability in cross-border capital flows. We will strengthen macroprudential management of real estate finance, improve the analytical framework for real estate finance, and optimize the underlying systems for real estate finance. Third, we will continue to enrich the macroprudential management toolbox, enhancing its systematization, standardization, and practical application. Through years of practice, the People's Bank of China has accumulated a relatively rich system of macroprudential and financial stability tools. For financial institutions, these tools include additional capital and leverage ratio requirements for systemically important banks, central bank financial institution ratings, stress testing, leverage ratio constraints, countercyclical capital buffers, countercyclical provisioning adjustments, total loss-absorbing capacity, recovery and resolution plans for systemically important financial institutions, and risk-differentiated deposit insurance premiums. For financial markets, the foreign exchange market includes tools such as risk reserves for forward foreign exchange sales and macroprudential adjustment parameters for cross-border financing. The bond market includes tools such as leverage levels, maturity mismatch management, and window guidance. The stock market has two monetary policy tools to support the stable development of the capital market, supporting Huijin Investment Co., Ltd. in its role as a "quasi-stabilization fund." We are currently considering balancing maintaining the stable operation of financial markets with preventing moral hazard in the financial markets, and exploring institutional arrangements to provide liquidity to non-bank institutions in specific scenarios. In the real estate finance sector, tools include down payment ratios, interest rates, real estate loan risk weights, and household debt-to-income ratios. Regarding risk management resources, there are the Deposit Insurance Fund and the Financial Stability Guarantee Fund, with the People's Bank of China fulfilling its lender of last resort role in accordance with the law. We will continue to expand and enrich our macroprudential management toolbox, and conduct dynamic assessments and optimizations. Fourth, we will continuously improve a coordinated and efficient macroprudential management governance mechanism. Macroprudential management requires particularly comprehensive coordination. Earlier this year, the People's Bank of China established the Macroprudential and Financial Stability Committee to strengthen analysis, research, communication, coordination, and implementation of major issues related to macroprudential management and financial stability. Going forward, under the leadership of the Central Committee, the People's Bank of China will strengthen monetary policy, macro-prudential management, micro-prudential supervision, and coordination with fiscal policy and industrial policy to create a synergistic force. Financial discipline, market discipline, and regulatory rules will be strictly enforced to prevent risk spillovers and moral hazard. Legislation and amendments to laws such as the People's Bank of China Law and the Financial Stability Law will be accelerated to strengthen the legal safeguards for macro-prudential management. Building a macro-prudential management system is a dynamic process that is constantly being advanced, and it is also a systematic project that requires the promotion and efficient collaboration of all parties. The People's Bank of China will earnestly implement the requirements of the 15th Five-Year Plan and work together with all parties to accelerate the construction of a comprehensive macro-prudential management system to promote high-quality economic and financial development. Finally, I wish this forum a great success. Thank you all!
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