China's central bank sets up non-bank large-amount redemption swap facility in bond market

China News Service, Beijing, October 26 (Tao Siyue) The Central Bank of China announced on the 26th that it will establish the Bond Market NBFI Swap Facility (BNSF).

BNSF supports non-bank asset management institutions to borrow central bank bills, raise funds in the market, and then subscribe for eligible assets that have encountered large redemptions. The People's Bank of China stated that the purpose of establishing this tool is to interrupt the cycle of redemptions and sales when the bond market experiences significant fluctuations, and to maintain the bottom line of preventing systemic risks. The tool is used in specific scenarios and is not a daily supply of liquidity. It is limited to extreme situations where the bond market experiences significant fluctuations and asset management institutions have group and liquidity risks.

Industry experts said that such an arrangement complies with the requirement that the central bank cannot directly grant loans to non-bank institutions, and effectively achieves emergency liquidity support for non-bank institutions through appropriate methods. BNSF, together with the Securities, Funds, and Insurance Companies Interchange Facility (SFISF), has established a non-bank emergency liquidity support mechanism covering the stock market and bond market.

According to market analysts, the mechanism designed by BNSF is to save the market rather than institutions. In particular, institutions that have problems due to their own imprudent operations will not be included in the bailout, and losses caused by excessive speculation by institutions will not be transferred to other entities. The central bank also pointed out in the announcement that participating institutions should continue to meet the prudent management requirements of the financial market and maintain market discipline.