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Baoshang collapse threatens China's economy, may trigger central bank response
- mhkool 7y agoBanks fail sometimes and there is no regulation or risk management system that can prevent it. To increase protection for clients and economy one could by law introduce 'bank types' where, for example the type 'low risk' is only allowed to do transactions with low risk with of course lots of options to define what 'low risk' is.
- LorenPechtel 7y agoWhile banks sometimes fail this is the tip of the iceberg. The government has been using the banks to keep the economy on high, never mind that an awful lot of the loan security is not worth it's paper value. I'm sure you've heard of the ghost cities?
- Rebelgecko 7y agoGotta be careful with that. Someone might get the bright idea to combine a bunch of smaller medium risk transactions to diversify and reduce risk. Then you end up with 2008 all over again
- mrunkel 7y agoWe used to have something like that in the US. Namely https://en.wikipedia.org/wiki/Glass%E2%80%93Steagall_legislation https://en.wikipedia.org/wiki/Glass%E2%80%93Steagall_legisla...
- NTDF9 7y agoCan someone explain how banks can survive if there is no demand for loans? Let's say an economy is fully saturated and content and doesn't desire more loans, do banks collapse in such a case?
- baybal2 7y agoMany banks in China are de-facto real estate companies This is just how much their biggest client business and their day to day operations got conjoined
- thatguy0900 7y agoI'd be willing to pay a fee to the bank to hold my money for me. That's a useful service. Or they could take some fee off a debit card every time it's used. I can't imagine many people would rather keep all their money at home rather than pay a bank to hold it for them.
- A2017U1 7y agoThey can't possibly do that with a bank account though? In the sense that a collapse would see you get cents in the dollar back, hopefully the taxpayer pays the rest if you are lucky. You can pay them for a safe deposit box and they can properly _hold_ your money if you want, but that money won't be worth much in 30 years. Unless I'm wrong and some banks provide a fully backed savings account? Doubt it would be worth the effort for them.
- gruez 7y ago>You can pay them for a safe deposit box and they can properly _hold_ your money if you want Depends on what your threat model is. A safe deposit box is safe from bank collapses/bail ins, but not against theft. >but that money won't be worth much in 30 years. In that case you'd probably be stashing gold rather than bills. >Unless I'm wrong and some banks provide a fully backed savings account? Doubt it would be worth the effort for them. because right now there's no demand for it. if there was a period of zero/negative interest combined with low confidence in banks, I'm sure that non-fractional reserve banks would pop up. Either that or people stash their money overseas.
- tonfa 7y agoThe FED is not very happy about narrow banking so far: https://www.bloomberg.com/opinion/articles/2019-03-08/the-fed-versus-the-narrow-bank https://www.bloomberg.com/opinion/articles/2019-03-08/the-fe...
- baybal2 7y agoIn China, there seem to be no moral boundary in between just any legit banking business, and the most crazy high finance tricks being done with creditors money. Moreover, I think most of local bankers think that's just the way it should be, thinking "boring Western style banking is just not for the high flyers like us" Few things to tame out of this: 1. In China, a model bank can fail overnight 2. Central bank totally missed a sum on order of tenths of billions in cash being moved under it nose 3. All "good on paper banks" (which means all of them, given that is China) are under doubt now 4. Nobody knows how to tell of real risk indicators as Chinese banker got ungodly good with hiding elephants in their balance sheets 5. The alleged "private project" of a banker that has failed was a "risk free" real estate project. 6. Big banks will grow even more wary of lending to small banks with no diversity in leadership. In a big bank, you can at least be sure if 1 GM out of thousands does this, at least 1 another GM out of those thousands will try to impede him, but that's not the case with "1 man banks" which nearly all non big four banks are (which themselves evolved out of failed ITICs that were ran by party cadres https://zh.m.wikipedia.org/wiki/广东国际信托投资公司 https://zh.m.wikipedia.org/wiki/广东国际信托投资公司)
- mrunkel 7y ago> In China, there seem to be no moral boundary in between just any legit banking business, and the most crazy high finance tricks being done with creditors money. How is this a "chinese" problem? The recent sub-prime loan bullshit took place in the US and almost sank the global economy. The bond pricing fixing took place in the UK and cost investors billions. This is endemic to banking globally. The only thing that seemed to help was Glass–Steagall in the US which of course, banks got repealed because it worked too well.
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- wbl 7y agoCould you please point to the entity whose collapse in the GFC Glass-Steagall would have prevented?
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- fspeech 7y agoWhy is this being treated as news as of now? Note the article chose to not mention a timeline or give any background at all. This bank was taken over on May 24 this year, with a very public announcement. Its purported major investor was arrested in 2017. The bank has not published an annual report since then. For details see: https://zh.wikipedia.org/wiki/%E5%8C%85%E5%95%86%E9%93%B6%E8%A1%8C https://zh.wikipedia.org/wiki/%E5%8C%85%E5%95%86%E9%93%B6%E8...
- pertymcpert 7y agoTFA and other news aren't reporting the takeover. There's some recent additional reports coming out now of the effects the takeover had on liquidity in the interbank markets.
- fspeech 7y agoThis was the first default in the interbank market so it broke the implicit credit guarantee in the interbank market. So this is a reform that is long overdue but they have to start from somewhere.
- chewz 7y agohttps://www.ft.com/content/75bffe36-9330-11e9-aea1-2b1d33ac3271 https://www.ft.com/content/75bffe36-9330-11e9-aea1-2b1d33ac3... > Banks in China are facing a pinch on liquidity following the government takeover of a commercial bank that is resetting the rules for trading in the country’s interbank market.
- zakum1 7y agoThey are called a “smallish lender” - their balance sheet is $90 billion. We are truly in an age of mega systemic banking risk.
- WJW 7y ago90 billion is not systemic though. It would hurt the profits of some of the other companies, sure, but it's not anywhere near threatening the entire system.
- mytailorisrich 7y agoI believe that the figure for JPMorgan is in the trillions. $90b is not that much for the financial system of a large economy.
- HeWhoLurksLate 7y agoAt one point, JP Morgan had more money (and power) than the US government, so that is not surprising.
- miketery 7y agoMaybe it had greater assets under management, that doesn’t translate to power or direct ownership. They are custodians and facilitators. Their worth is traded on NYSE and doesn’t exceed top internet companies, who imo have more power.
- HeWhoLurksLate 7y agoSorry, I should have put a date on there. I was referring to the era right before the Great Depression.
- quintushoratius 7y agoJP Morgan, when it was owned by JP Morgan, was in the position of ordering public officials to attend meetings on and do it's (his) bidding. JP Morgan, the man, is responsible for creating the Federal Reserve. Interesting story from NPR's Planet Money: https://www.npr.org/sections/money/2015/11/11/455675540/episode-505-a-locked-door-a-secret-meeting-and-the-birth-of-the-fed https://www.npr.org/sections/money/2015/11/11/455675540/epis...
- cs702 7y agoThe global wave of bank failures in the Great Depression was triggered by the seeminly unimportant collapse, in May 1931, of a bank in Vienna, Creditanstalt, which was tiny in relation to the size of the global banking system.[a][b][c] Similarly, in 2008, global credit markets froze after the failure of one investment bank, Lehman Brothers.[d] A single bank failure can have enormous consequences, given the interconnected nature of banking systems. If one bank is unable to pay money owed to other banks, those banks might be unable to pay money owed to yet other banks. According to the article, "banks in China are facing a pinch of liquidity," i.e., they're telling other banks to whom they owe money that they can't pay right now, but this is only a temporary "pinch." [a] https://www.bis.org/publ/work333.pdf https://www.bis.org/publ/work333.pdf [b] https://www.jstor.org/stable/3133667 https://www.jstor.org/stable/3133667 [c] http://eprints.lse.ac.uk/87151/1/wp274.pdf http://eprints.lse.ac.uk/87151/1/wp274.pdf [d] https://en.wikipedia.org/wiki/Bankruptcy_of_Lehman_Brothers#Impact_of_bankruptcy_filing https://en.wikipedia.org/wiki/Bankruptcy_of_Lehman_Brothers#...
- onlyrealcuzzo 7y agoUnrelated, but you seem to know a lot about this, and I've been trying to track down an answer for months, so I'll ask. I notice that China's M2 is $27.52T -- which is roughly equal to the US and the EU combined (ditto for M3). Considering China's real economy is roughly a quarter of the size of the US and EU combined, how can it sustain such a high M2? I ask on the tangent that it seems like China has ridiculous amounts of cash to GDP, so it seems like defaults should be extraordinarily rare.
- cs702 7y agoI don't fully understand how China works as a country and economy: * It is not a democracy. * Citizens lack certain social freedoms that people in other developed countries take for granted. * Properly speaking, it is not a capitalist system, as there is a lot of investment, including by state-owned enterprises, that seems uneconomic (extreme example: ghost cities). * According to numerous media reports, its financial system has been plagued by bad loans for many years, so far without consequence (a quick Google search for "China bad loans" can verify it). * Its national accounting figures (e.g., GDP) are reportedly "managed" (or less charitably, cooked) and therefore cannot be taken at face value. * Its money supply, e.g., as measured by M2, appears to be much greater than levels that would be considered ludicrous in other developed economies. It remains to be seen whether this latest "pinch" of liquidity in the banking system is the proverbial canary in the coal mine.