Question 3

China's financial regulators plan to impose additional capital requirements on the nation's systemically important banks, seeking to curb risks and safeguard stability of the $49 trillion industry. Banks considered too big to fail will be put into five categories and face a surcharge of between 0.25% and 1.5% on top of the mandatory capital adequacy ratios, the People's Bank of China and the China Banking and Insurance Regulatory Commission said in a draft rule on Friday.

(Source: Theedge Malaysia; April 2, 2021)

Required:

(a)Explain too big to fail" with an example.

(b)Discuss the possible impacts of the additional capital requirements on:

(i)China's banking industry,

(ii)China's stock market.

(c)Explain how the financial deregulation of the financial market would reduce the cost of using financial securities.