The creation of a new regulator for the banking industry underlines the importance that Beijing is giving to oversight, according to a China banking specialist. 'The important thing that the leadership is trying to stress is that having banks work effectively and safely is such an important issue they are going to create a group at the same level as the [People's Bank of China],' said Philip Strause, regional practice director for financial services at Deloitte Consulting. Bank of China president Liu Mingkang is considered the probable first head of the new ministry, the China Banking Regulatory Commission. But Xiao Gang, a deputy governor of the People's Bank of China (PBOC), is also considered a leading candidate. 'My understanding is that the PBOC and the new banking commission is on a par with China Securities Regulatory Commission [CSRC] and China Insurance Regulatory Commission. All report to the premier,' Mr Strause said. In addition, putting an individual highly regarded by the market at the helm of the new agency 'speaks of how important the job is', he said, referring to the expected appointment of Mr Liu. The functions and responsibilities of the new watchdog have yet to be officially revealed, but evidence so far has indicated the commission will take over the function of monitoring banks from the PBOC. The PBOC will then focus on the country's broader macro-economic financial management issues - such as interest rates and money supply - like central banks elsewhere. Official launch of the new banking watchdog is expected shortly. A final decision has yet to be made on whether it will be separated from the PBOC, as most expect. Mr Liu's expected appointment - alongside the recent appointment of former CSRC chairman Zhou Xiaochuan as PBOC chief - would reinforce the perception that Beijing is determined to tackle long-standing problems in its banking sector, which is technically insolvent by international standards. Personnel reshuffles are expected to be followed by bank reform. Many believe the banking sector poses the biggest threat to the mainland's economic stability and long-term growth prospects, with some estimating that up to half of all loans at China's state-run banks are bad. The top priorities of the proposed banking regulator would have to be sound regulation and tight supervision, Mr Strause said. 'By tight supervision, I mean not only a review of a bank's financial results and credit and risk management records, but also there should be ways of putting bite into the supervisory process.' Major areas that need attention by mainland banks include credit-risk management and internal audit controls. 'China's banks have got to be a lot tougher about making a credit decision. In addition, the notion of internal audit and controls also need to be strengthened. The present relatively limited role played by supervisors needs to be expanded and professionalised.'