CHINA is tightening its grip on interbank lending with more expansive rules that include capping the size and maturity of loans, a move to defuse risks in shadow banks and better support the real economy.

    The new regulations would bring the country’s sometimes recalcitrant interbank market into official oversight by “blocking the back route” and “opening the front door,” five financial regulators said Friday in a joint statement.

    Tougher rules would help direct more cash into the real economy and lower funding costs for firms, the central bank and the regulators for banks, securities, insurance and currency said.

    Interbank loans are one part of China’s ballooning shadow bank market — a growing headache for regulators due to its murky practices and periodically lax lending standards.

    With immediate effect, banks can no longer make interbank loans that extend over three years, and loans are not to be rolled over when they mature.

    The proportion of financing that comes from the interbank business must also not exceed a third of any bank’s total liabilities, the regulators said.

    For banks that do not report their interbank loans on their balance sheets, the new rules would compel them to do so. Some analysts also say that this means banks now have to include interbank loans and deposits in their calculations of the loan-to-deposit ratio.

    As for branches of financial institutions that are involved in the interbank business, these firms must create a company-wide system that tracks the borrowing record of any firm, including any sum borrowed via the interbank business.

    And final approval for any deal in the interbank business must be signed off by the headquarters of all financial institutions. (SD-Agencies)