On October 10, 2024, the central bank announced a decision to create a new tool.

SFISF is here!

Let's chat briefly today.

Everyone knows that, besides banks, financial institutions also include securities companies, fund companies, insurance companies, and other non-bank financial institutions.

If banks are short of money, they can apply for loans from the central bank.

But if non-bank financial institutions lack money,

The central bank cannot directly provide loans to them.

SFISF stands for Securities, Funds and Insurance companies Swap Facility, which means the exchange convenience for securities, funds, and insurance companies.

This is a method of "swapping securities for securities".

Qualified securities, funds, and insurance companies can use bonds, stock ETFs, csi 300 index constituent stocks and other assets to exchange for high-grade liquid assets such as national bonds and central bank bills.

However, the funds obtained by securities, funds, and insurance companies through swap tools cannot be misused.

Through SFISF, it significantly enhances the funding acquisition capability and shareholding ability of non-bank financial institutions, which is beneficial for better leveraging the stabilizing market role of securities, funds, and insurance companies, and also brings active "liquidity" to the stock market.​

Since SFISF adopts the method of "swapping securities for securities", the central bank does not directly provide money, thus it does not expand the base money supply.

In short, SFISF, as a swap tool, can be compared and contrasted with CBS.

Today we have time, so let's talk more about CBS.

CBS stands for Central Bank Bills Swap, which is a tool for central bank bill exchange.

It can be simply understood as the exchange of central bank bills and perpetual bonds issued by banks.

Central bank bills are short-term debt instruments issued by the central bank to regulate excessive reserves of commercial banks, with maturities ranging from 3 months to 3 years.

,

Based on the credit of the central bank, central bank bills have strong liquidity.

Therefore, in the eyes of investors, holding central bank bills feels a bit like -

We have explained perpetual bonds in detail before, so we won't go into detail this time.

Just remember, perpetual bonds are bonds with no specific maturity date or very long term.

The term is so long that...

There is no ruling out the possibility below -

The so-called perpetual bonds of banks refer to the perpetual bonds issued by banks.

Banks can supplement their capital by issuing perpetual bonds.

However, for investors, perpetual bonds have weak liquidity and long terms.

Sometimes this illusion occurs:

It can be seen that perpetual bonds are relatively conservative investments.

This brings us back to our main theme, why introduce CBS,

Let's explore a short story,

On a remote island, Old Wang went out to sea and caught a sea turtle, planning to sell it in the market.

However,

the sea turtle couldn't be sold, so Old Wang went to find the chief.

In this way, investors who wanted to buy the sea turtle could exchange it for sea fish.

Old Wang's sea turtle was successfully sold.

If we imagine Old Wang as a bank, the sea turtle as perpetual bonds, and the sea fish as central bank bills, then

this is the reason why the central bank created CBS.

The liquidity and credit rating of central bank bills are higher than perpetual bonds, enhancing the liquidity of bank perpetual bonds, supporting banks in issuing perpetual bonds to supplement capital.

Not really,

CBS only accepts banks' perpetual bonds,

and has certain requirements for the asset quality and capital adequacy ratio of banks.

It also requires banks to increase support for the real economy after supplementing capital.

Also not really,

Only primary market dealers in open market operations are eligible to exchange.

Primary market dealers here mainly refer to banks and some securities companies.

Yes, it is needed,

The swap period generally does not exceed 3 years,

For the plot needs, you don't need to pay attention to these details.

The central bank bonds obtained from swaps cannot be used for spot transactions, repos, etc.,

But the central bank bonds can be used as collateral, including as collateral for institutions participating in central bank monetary policy operations.

Upon maturity, the central bank and primary dealers exchange bonds with each other,

Moreover, the interest on bank perpetual bonds still belongs to the primary dealers.

Although the primary dealers have exchanged perpetual bonds and central bank bonds, ownership of the perpetual bonds has not been transferred, so the interest naturally belongs to the original noteholders, namely the aforementioned primary dealers.

Therefore, through CBS, the central bank only provides liquidity support for bank perpetual bonds, does not assume credit risk, and the credit risk is still borne by the original noteholders, so the original noteholders cannot achieve off-balance sheet through the CBS tool.

CBS adopts the exchange of bonds without involving the injection and withdrawal of base currency, which has a neutral impact on the liquidity of the banking system.

Alright,

Let's stop here for today.

By the way, it should be noted that the initial scale of operations for SFISF this time is 500 billion yuan, and the scale will be further expanded according to the situation.

Source of materials: official media/network news

Editor/Somer