China has establish a countercyclical capital buffer mechanism in the latest move to diversify the macro-prudential policy toolbox, said the country's central bank and banking and insurance regulator.

It takes effect from Wednesday, according to a statement on the People's Bank of China (PBOC) website, citing a circular jointly released by the PBOC and the China Banking and Insurance Regulatory Commission.

The two departments will regularly assess and adjust the countercyclical capital buffer requirements to prevent systemic financial risks upon comprehensive consideration of the macroeconomic and financial situation, leverage ratio level, stability of the banking system, and other factors, said the statement.

The mechanism will further promote the sound operation of financial institutions in the banking sector and enhance the countercyclical adjustment capacity of macro-prudential policies, the statement noted.

It will also help to mitigate the negative impact of pro-cyclical fluctuations and sudden shocks of financial risks, and maintain the stable operation of China's financial system, said the statement.

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