Baoshang Bank Takeover by PBOC: Was It The Beginning of China’s Liquidity Crisis?

We’re now one month removed (May 24th) since the PBOC and Chinese banking and financial regulators seized tiny Baoshang Bank in Inner Mongolia. In the one month since, many additional problems in the Chinese banking and financial systems seem to be coming to light. Did Baoshang Bank start a liquidity crisis?

China’s SHIBOR lending rate fell even further in the last few days and is now at the lowest level seen this decade. SHIBOR is the rate that banks lend unsecured funds to other banks in the national inter bank money market. It is very rare for the overnight SHIBOR lending rate to be set as low as 1.00% as seen today. The last time this happened was back in 2008 – 2009 during the financial crisis.

Larger Chinese banks are also demanding big increases in collateral for loans to other banks, which the smaller banks may not have.

There’s over one dozen good articles related to China’s banking and liquidity crisis in just the last few weeks!
1) Baoshang Bank Could Be China’s Indybank pentoport.com/baoshang-bank-co…
2) In Depth: How Baoshang Takeover Shook Secretive Corner of Bond Market www.caixinglobal.com/2019-06-…
3) Baoshang Failure Takes a Toll in China’s Interbank Markets as Contagion Fears Grow www.nytimes.com/reuters/2019/…
4) China banks face liquidity squeeze in wake of Baoshang takeover www.ft.com/content/75bffe36-9…
5) Chinese debt crisis looms (The Economist) www.theaustralian.com.au/comm…
6) As China’s Banking System Freezes, SHIBOR Tumbles To Lowest In A Decade www.zerohedge.com/news/2019-0…
7) Meanwhile In China, Echoes Of Lehman As Interbank Market Freezes www.zerohedge.com/news/2019-0…
8) China Hit By “Significant Banking Stress” As SHIBOR Plummets To Recession Levels www.zerohedge.com/news/2019-0…
9) China’s Money-Markets Strains Ease, but System Is Still Vulnerable to Shocks www.wsj.com/articles/chinas-m…
10) China’s bank turmoil locks in moral hazard www.nasdaq.com/article/chinas…

 

 

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