Bank regulator proposes tightest shadow lending oversight to date

The China Banking Regulatory Commission yesterday pitched one of the most aggressive measures to date aimed at reining in the shadow banking industry.

The potential change, currently a draft on which the regulatory body is seeking public comment, would bring many off-balance-sheet assets onto the books for accounting purposes .

"This would be the biggest change we've seen for controlling shadow banking," said Chen Xingyu, a banking analyst at Phillip Securities in Shanghai, noting that the measure could bring an unprecedented level of transparency to off-book bank lending. "We expect more clarity on this in the coming months."

The draft of potential changes from the CBRC gave few details but said that off-balance-sheet assets such as bankers' acceptances and trade finance would be included in the calculation of leverage ratios at banks.

Clarity would also be added to the calculation method for banks' exposure to derivatives and securities financing transactions.

For two years, the CBRC has attempted to narrow the channels that banks can use for off-balance-sheet lending with limited success.

Assets under management at trust companies, a once-favoured conduit for bank shadow lending, fell in the third quarter to the lowest level since 2010. However, banks have found new, less-transparent channels such as securities brokers and, more recently, insurance companies through which they can structure products.