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The Chinese banking system does this. With regards to not losing money on underperforming loans, the government just prints up money and bails out the banks fo
by narrator 9y ago
The Chinese banking system does this. With regards to not losing money on underperforming loans, the government just prints up money and bails out the banks for all their mistakes. To keep moral hazard from getting out of hand, financial fraud or even rule breaking is punished severely with the worst frauds leading to executions and the banks are micromanaged to the point of being partially privatized central planning.
- seanmcdirmid 9y agoThe big Chinese banks (BOC, ICBC, ...) are all SOEs, so they are basically owned by the government. Interest rates on deposits are paltry (even by western standards), and the banks make all their retail money on shadow banking products. What really kills the banks, however, is the loans they are forced to give out to other SOEs.
- ryankupyn 9y agoIt's worth noting that printing money and giving it to the banks is effectively the same as taxing cash - it causes inflation and reduces the value of Yuan-denominated assets (though there are ways to manage this). By doing this, the Chinese government is subsidizing entities that borrow from the bank (which are often SOEs) without directly taxing its citizens.
- nashashmi 9y agoAlso worth noting that China prints money to keep the Yuan low and then charges high interest rates to keep the cash from the markets and keep salaries low.