At a press conference today, PBOC Governor Pan Gongsheng announced the creation of new monetary policy tools to support the stable development of the stock market. The establishment of convenient swaps between securities, funds, and insurance companies will support eligible entities to pledge assets for liquidity from the central bank, significantly enhancing their funding and shareholding capabilities. Additionally, a special share buyback and shareholding refinancing facility will be set up to guide banks in providing loans to listed companies and major shareholders to support share repurchases and shareholdings.

In more detail, convenient swaps between securities, funds, and insurance companies support eligible entities to use bonds, stock ETFs, csi 300 index constituents, and other assets as collateral to exchange for high-liquidity assets like national bonds and central bank bills from the central bank. The initial scale of the convenient swaps is 500 billion yuan, with the possibility of expansion in the future. Funds obtained through this tool can only be used for investing in the stock market.

The special share buyback and shareholding refinancing tool guides banks to provide loans to listed companies and major shareholders for repurchasing and shareholding purposes. The central bank provides 100% funding support at a loan interest rate of 1.75%. The initial quota is 300 billion yuan, with the potential to expand in the future. This policy applies to listed companies of different ownership types.

Pan Gongsheng emphasized that this is the central bank's first implementation of structural policy tools to support the capital markets. According to sources close to the central bank, the purpose of the aforementioned innovative tools is to "stabilize the stock market and boost confidence." These tools draw a parallel to the Term Securities Lending Facility (TSLF) introduced by the Federal Reserve during the 2008 financial crisis, which aimed to boost market confidence and was later reactivated during the COVID-19 pandemic.

Previously, the PBOC introduced the Central Bank Bills Swap (CBS) tool in 2019, allowing primary dealers to exchange perpetual bonds for central bank bills, improving the liquidity of commercial bank perpetual bonds and effectively supporting banks in issuing perpetual bonds to supplement capital.

"Convenient swaps do not involve direct monetary injections or an expansion of the monetary base," market experts told Caixin. According to the current People's Bank of China law, the central bank is prohibited from providing direct loans to non-bank financial institutions. The swaps between securities, funds, and insurance companies follow an "exchange of securities" approach, which enhances non-bank financing capability without directly providing funds and without impacting the monetary base.

Regarding the special share buyback and shareholding refinancing, sources close to the central bank explained that this facility does not involve direct or indirect loans from the central bank to enterprises. Instead, through incentive-compatible mechanisms, it encourages 21 national banks to independently and at their own risk provide loans at preferential rates to eligible listed banks and major shareholders for share buybacks and shareholdings. After relevant departments verify the loan purpose, the PBOC provides 100% refinancing support based on the loan principal.

It is reported that the People's Bank of China will closely collaborate with the China Securities Regulatory Commission, the Banking and Insurance Regulatory Commission, and other institutions to support listed companies and major shareholders in their share buyback and shareholding work.