Core Viewpoint - The People's Bank of China (PBOC) is exploring mechanisms to provide liquidity to non-bank financial institutions (NBFIs) under specific circumstances, marking a new phase in the construction of China's financial safety net [2][5]. Group 1: Importance of Non-Bank Financial Institutions - NBFIs have become increasingly significant in China's financial system, managing assets worth trillions of yuan and actively participating in various financial markets [3]. - The business models of these institutions often involve liquidity transformation, making them inherently susceptible to liquidity risks [3]. Group 2: Need for Liquidity Support Mechanism - Although China has not experienced a systemic liquidity crisis among NBFIs, proactive measures are necessary to prevent potential issues [4]. - Current liquidity tools from the PBOC primarily target commercial banks, leaving NBFIs reliant on indirect support, which may fail under market stress [4]. Group 3: Conditions for Liquidity Support - The PBOC's emphasis on "specific circumstances" for providing liquidity reflects a cautious and forward-looking policy design [5]. - These conditions aim to prevent moral hazard by ensuring that liquidity support is not a routine measure but rather a response to systemic pressures [5]. Group 4: International Practices and Lessons - Global central banks have evolved their stance on providing liquidity support to NBFIs, recognizing their systemic importance post-2008 financial crisis [6]. - Emergency tools created by the Federal Reserve during crises serve as examples of how liquidity support can be structured for NBFIs [6]. Group 5: Challenges in Preventing Moral Hazard - Establishing clear triggering conditions for liquidity support is crucial to avoid indiscriminate aid to struggling NBFIs [7]. - A cost mechanism should be designed to ensure that liquidity support is not free or low-cost, thereby incentivizing institutions to restore normal financing capabilities [7]. Group 6: Mechanism Design Innovations in China - China's diverse types of NBFIs necessitate a flexible liquidity support mechanism tailored to their unique needs [9]. - The financial market structure in China, which includes both interbank and exchange markets, requires consideration of cross-market effects in liquidity support design [10]. Group 7: Coordination with Macro-Prudential Management - The exploration of liquidity support mechanisms aligns with the need to build a comprehensive macro-prudential management system [11]. - Macro-prudential measures can help mitigate liquidity risks at NBFIs by enforcing regulatory indicators and conducting stress tests [11]. Group 8: Institutional Framework and Continuous Improvement - Establishing a legal foundation for liquidity support is essential to clarify the PBOC's responsibilities and conditions for providing aid [12]. - Continuous evaluation and optimization of the liquidity support mechanism are necessary to adapt to evolving market conditions and risks [13].