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WRAPUP 2-China c.bank to coordinate work of new financial oversight body

(Recasts lede, adds comment from c.bank official and securities regulator)

BEIJING, July 18 (Reuters) - China's powerful central bank will be in charge of coordinating a new financial oversight body mandated by President Xi Jinping to get the country's often siloed regulators to work together to contain rising credit risks.

Xi said on Saturday that a new Financial Stability and Development Committee will be set up under the State Council, or cabinet, and that the People's Bank of China (PBOC) will take on a bigger role in managing risks in the financial market.

No indication has emerged on who could head the committee.

After Xi's statement, regulators and policymakers pledged to improve the way they coordinate supervision for what officials call a "chaotic" financial market. China is grappling with rising risks from misallocated investment that has built up since the global financial crisis.

PBOC said on Tuesday that it would "carry out the office duties" of the new body, indicating the committee's day-to-day operations might be conducted from the central bank.

An unnamed PBOC official quoted by Xinhua on Tuesday said the committee's office will be based at the central bank.

The new body's responsibilities include formulating plans for the development of the financial sector, ensuring regulatory cohesion, formulating rules and regulations to fill in regulatory gaps, and holding regulators accountable when supervision is lacking, Xinhua quoted the official as saying.

A researcher at a government think tank, who insisted on anonymity, said it made sense for the PBOC to host the office as the central bank had the capacity and resources to do the work.

Those resources include PBOC's own financial stability department. The department head, Lu Lei, told the official People's Daily in an interview the new committee will help to coordinate financial reform and regulation of markets.

Lu, who was recently appointed deputy head of the foreign exchange regulator, described China's markets as "full of chaos" and lax supervision.

He also said the new body's scope of influence could extend to monetary, fiscal and industrial policy.

SUPPORT IS PLEDGED

China's banking regulator on Monday vowed to "resolutely follow" the leadership of the new financial stability committee and to work closely with the PBOC and other regulators.

The insurance regulator said it supported Xi's focus on fighting financial risks and deepening reform, while the securities regulator said it would follow the lead of a new financial oversight body.

With the government pledging anew to contain financial risks, speculative Chinese stocks on Monday fell, as investors interpreted that to mean tighter regulation.

Analysts also interpreted creation of the committee and Xi's comments on the importance of financial security and deleveraging to mean further monetary tightening and stronger risk controls.

"Financial regulatory tightening will likely go deeper and stay longer than many previously expected," economists at Bank of America Merrill Lynch said in a note Monday.

As is usually the case with a new campaign to step up reform, some voices have emerged calling for prudence in implementing changes.

"Financial market development should learn from foreign experience, but must be based on national conditions... and cannot be too hasty," the People's Daily said in a commentary Tuesday. (Reporting by Elias Glenn; Additional reporting by Kevin Yao and Stella Qiu; Editing by Sam Holmes and Richard Borsuk)