China May Force Banks to Plan in Case of Financial Crisis

China’s banking regulator plans to require lenders to set up procedures to allow them to restore their finances in the event of a crisis, a person with knowledge of the matter said.

Banks considered systemically important may have to adopt safeguards including selling debt that can be converted into equity, the person said, declining to be identified because the watchdog’s deliberations are confidential. Regulators will also be given broader powers to supervise those lenders’ decision- making and operations to help discover potential risks early, the person said.

China is seeking to avoid a repeat of its last banking crisis, when the government spent more than $650 billion over a decade to bail out banks after years of state-directed lending. Concerns about lenders’ asset quality resurfaced after credit expansion surged to 96 percent in 2009, prompting the banking regulator to push through more stringent capital requirements.