People’s Bank of China crackdown on bank lending looks good for long term stability
Despite causing a market panic and having to slightly amend its original policy statement, PBoC stands firm on making changes to the way banks in the country do business. July 03, 2013 | Baron LaudermilkTwo weeks ago, China’s interbank liquidity appeared to suddenly dry up, sending investors into a blind panic across the globe. According to an article written by Standard & Poor’s researchers Qiang Liao and Liang Zhong, “Tight Interbank Liquidity Test China’s Delicate Dance Between Bank Discipline and Stability”, the weighted average of the overnight borrowing rate among the country’s banks increased to 13.8% on June 20th 2013, a jump of 610 basis points from a day earlier, or 1,050 bps from a month ago. The spike is more than likely due to the hike in costs that came from the People’s Bank of China (PBoC) policy stance on curbing Chinese banks’ excessive expansion of their wealth management businesses, and dependence on interbank borrowing for liquidity. But the PBoC realised that the impact of their crackdown was much more far-reaching than they had expected. On June 25, 2013, the PBoC moved to assure markets of the country’s stability by injecting fresh liquidity into financial institutions that needed it following the disarray that pushed shares to their lowest in more than four years. The PBoC issued a statement that said, “The central bank will provide liquidity support to financial institutions that face temporary shortages, but which have been lending, at prudent amounts and pace, in line with government policy and supporting the real economy. The central bank will also take necessary measures to help those institutions who have problems in managing liquidity to maintain overall stability in the money market.” Amid the chaos that ensued, the country’s leaders were quick to blame overly aggressive media coverage and speculation for sparking global market anxiety, as rumours surfaced that Bank of China had defaulted on a payment. Indeed, failure to clarify events as they unfolded only served to highlight the clumsy handling by P... Please login to read the complete article. If you already have an account, you can login now or subscribe/register.
Categories: China, Regulation, Risk and RegulationChina,riskregulation,Risk and Regulation, China,Regulation,Risk and Regulation, Keywords:PBoC, Standard & Poor’s, Zhang Ziwei, Nomura, Liquidity Risk PBoC, Standard & Poor’s, Zhang Ziwei, Nomura, Liquidity Risk
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