UPDATE 1-China tells banks, insurers to prepare 'living wills' to deal with potential risks

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BEIJING, June 9 (Reuters) - China’s banking and insurance watchdog issued rules on Wednesday requiring sizable banks and insurers to prepare recovery plans in the unlikely event that they run into financial trouble, as the regulator seeks to strengthen the safety net of the country’s financial sector.

The goal for such plans, which are commonly known as “living wills” for financial institutions in some developed economies, is to make sure China’s financial institutions don’t end up needing costly bailouts in the wake of risk events without contingency plans, and to maintain financial stability, the watchdog said.

Banks, rural credit cooperative and other deposit-taking institutions with consolidated assets at home and abroad of no less than 300 billion yuan ($46.96 billion) should prepare such recovery and resolution plans, the China’s Banking and Insurance Regulatory Commission (CBIRC) said in a statement on its website.

Insurers with no less than 200 billion yuan of total on-book assets at home and abroad should also prepare such plans, it added.

The regulator added that eligible financial institutions should first make use of their own assets and ask for help from their own shareholders before turning to the government for support when running into trouble.

“They should prevent aggressive behaviour to shoulder too much risks, and prevent the moral hazard of over-relying on public rescues and support,” according to the statement.

A grace period will be given for the implementation of the rules, the CBIRC said, without stating specific deadlines.

In early stage trials, the CBIRC has already asked the country’s largest state banks including the Industrial and Commercial Bank of China , Bank of China , Agricultural Bank of China , and China Construction Bank to set up such plans.

Insurance giant Ping An Insurance Group has been required to take similar action. ($1 = 6.3885 Chinese yuan renminbi) (Reporting by Cheng Leng and Ryan Woo; editing by Louise Heavens and Kim Coghill)