China's financial stocks slumped on Thursday after Beijing's banking regulator unveiled new restrictions on wealth management products (WMPs) on Wednesday in order to reduce risk taking.
The China Banking Regulatory Commission released a statement ordering lenders to set up greater transparency controls for each financial instrument sold. Banks will now have to keep an accounting book for each instrument to monitor all actions.
The news sparked a sell-off in the sector, with Industrial Bank plunging 10 percent, China Minsheng Bank tumbling 9 percent and Anxin Trust easing over 7 percent.
"While we feel this is clearly negative for the local banks; for other asset classes these measures represent a prudent and disciplined approach to what is clearly a growing problem for the Chinese," said Chris Weston of IG Markets in a research note.
WMPs, which span from trust loans to letters of credit, constitute a large part of bank balance sheets, and as much as half of all new deposit growth is generated through this medium.
In December, Fitch Ratings Agency released a report stating that "WMPs present growing risks for the sector as larger amounts of funding are sourced through this channel." The report further detailed how Chinese banks were issuing the equivalent of 100 new WMPs per day in the third quarter of 2012.