Driven by the push for international regulation cooperation and the domestic demand to deal with potential systemic risks, China introduced the Macro Prudential Assessment (MPA) framework on January 1, 2016. International regulation coordination, the need to handle domestic accumulated financial risks, adapting to changes in banks’ balance sheets and interest rate liberalization are the main incentives for China to launch a regulation system with macroprudential perspectives and microprudential standards. The MPA system, with seven categories and 18 sub-indicators, aims to address pro-cyclical effects, interconnectivity and regulatory arbitrage, and improve market-based reforms. Based on the MPA mechanism, the central bank of China will establish a double-pillar framework combining monetary and macroprudential policy. The double-pillar system is trying to deal with the potential systemic challenges in the financial system, strengthen the counter-cyclical functions of the policy arrangements, modify aggregate management and
improve regulation coordination and integration.
