China is working on a plan to set up a new fund to support ailing financial firms, Bloomberg reported citing sources. 

The People’s Bank of China is working with the country’s ministry of finance and the China Banking and Insurance Regulatory Commission to set up the fund.

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China’s move, which comes at a time of rising debt crisis along with the new wave of Covid-19 infections, is aimed at mitigating risks faced by rural banks across the county and several developers who have at least $1 trillion in liabilities. 

Notably, the fund will be focused on helping financial institutions, but it could indirectly rescue systematically important entities in other areas including real estate via bank financing, the sources said.  

The capital for the fund will come from various sources such as major banks, local governments and other funds that were set up to rescue insurance or trust firms and insure retail deposits, they added. 

The plan for the fund was announced last week by Chinese Premier Li Keqiang and is expected to complete by September. 

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As per the report, the fund size is expected to be tens of billions of dollars, which could be increased and a final decision on it is yet to be made. 

The premium rate paid by some banks to insure their deposits could also be raised by the regulator, the sources said.

Recently, the Chinese central bank announced rating results of financial institutions in the fourth quarter of 2021, in which 316 entities were marked as most exposed and most of them are small banks.