Shadow Banking Risks Exposed by Local Debt Audit: China Credit

[freedom]

It is definitely a systematic risk, but whether it will cause a financial crisis is a completely different question. It depends on whether the private sector is able to take the loss, how much is required to be absorbed by the financial system and whether the financial system can withstand the shock.

It's about time to wake up people who believe in "implicit guarantee" of the banks. The shadow banking system has grown large enough to threaten the health of the financial system and sucked resources from the regulated financial system.

[egghead]

My thinking is that they may decide to choose their own "Lehman Brothers" to let the market learn a lesson while minimizing damages to the economy.

[CityFarmer]

My thinking is that they may decide to choose their own "Lehman Brothers" to let the market learn a lesson while minimizing damages to the economy.

Yes, I have the similar thinking.

The next question is who are the "Lehman Brothers"? After that, it comes the next question, who are the "BofAs"? The former is to avoid losses, and latter is to profit.

[specuvestor]

We have been discussing this in the ICBC thread. For the reference of those interested in the 31 Jan event:

http://www.valuebuddies.com/thread-1235-...l#pid72054

[egghead]

Thanks. Great discussion over there.

[dreamybear]

Trouble Is Brewing in the Darkest Corner of China’s Shadow Banking
October 9, 2019

(Bloomberg) -- Analysts on the lookout for China’s next financial shock are training their sights on the least regulated corner of the nation’s sprawling shadow banking system.

Their concern centers on so-called independent wealth managers, which have expanded rapidly in recent years by selling high-yield products to affluent investors. Largely untouched by a government clampdown on nearly every other form of non-bank financing, the industry has grown from obscurity into a major source of funding for cash-strapped Chinese companies.

The worry now is that products arranged by independent wealth managers will face mounting losses as China’s economic slowdown deepens and corporate defaults surge. Confidence in the industry has plunged since July, when Noah Holdings Ltd. said that 3.4 billion yuan ($477 million) of credit products overseen by one of its units were exposed to an alleged fraud by a Chinese conglomerate. U.S.-listed shares of Noah, one of China’s biggest independent wealth managers, have tumbled 38% in the past three months.

“I wouldn’t be surprised to see some losses,” said Jasper Yip, Hong Kong-based principal of financial services at Oliver Wyman, a consulting firm. “More borrowers will run into payment difficulties in a slowing economy.” .....

https://finance.yahoo.com/news/trouble-b...00882.html

----------------- following is the article mentioned by 1st article above -----------
A Guide to China's $9 Trillion Shadow-Banking Maze
30 November 2018, 12:43 GMT+8

Shadow banking in China is a vast ecosystem which connects thousands of financial institutions with companies, local governments and hundreds of millions of households. Its growth in recent years, fueled by asset management products and peer-to-peer lending, lifted a broad measure of shadow banking assets to an estimated $10 trillion. But then the crackdown came, prompted by a government campaign to tackle risks in the financial industry that might threaten the wider economy. One of the main problems is that regular banks -- unlike in the U.S. -- are major participants, keeping shadow-banking assets off their balance sheets to sidestep regulatory constraints on lending. Already, the shadow-banking tally has dropped to $9 trillion, according to Moody’s Investors Service. Here’s a glossary ......

https://www.bloomberg.com/news/articles/...-quicktake