Shadow banking in China has grown rapidly in recent years, increasing financial stability risks. Major shadow banking institutions include trusts, wealth management products, and off-balance sheet bank activities. This rapid growth was driven by regulatory arbitrage as banks sought to expand credit outside of regulatory constraints. However, shadow banking also contributes to high leverage, liquidity and maturity transformation risks, exacerbating China's credit and economic imbalances. More research is needed to understand these systemic risks and appropriate regulatory responses.
Discusses briefly shadow banks, their role in the subprime crisis, their activities in China, and the regulations and measures taken to control or reduce the negative effects of those financial institutions on the world economy.
My Master's Thesis with the title "The Elephant in the Regulator's Room: Estimating the Size of the Global Shadow Banking System" compares different approaches to measuring the true size of shadow banking, for which crucial data is still missing. In addition to official statistics, I propose two further methods of empirically estimating assets in this amorphous system following a recent paper. The findings suggest that the system is larger than assumed and accumulated $96 trillion in 2015.
Shadow Banking and the Global Financial Crisis: The Regulatory Response (Oxfo...J.P. Reimann
This paper studies the shadow banking system and its regulation since the global financial crisis of 2008. The shadow banking system is a newly coined term, that is not yet (or only very scarcely) regulated or defined. It has been remarked that the shadow banking sector played a major part in the leading up to the crisis. While regulators have been quick to introduce stricter rules for banks and insurance companies, the shadow banks have been left largely untouched by new regulations.
Discusses briefly shadow banks, their role in the subprime crisis, their activities in China, and the regulations and measures taken to control or reduce the negative effects of those financial institutions on the world economy.
My Master's Thesis with the title "The Elephant in the Regulator's Room: Estimating the Size of the Global Shadow Banking System" compares different approaches to measuring the true size of shadow banking, for which crucial data is still missing. In addition to official statistics, I propose two further methods of empirically estimating assets in this amorphous system following a recent paper. The findings suggest that the system is larger than assumed and accumulated $96 trillion in 2015.
Shadow Banking and the Global Financial Crisis: The Regulatory Response (Oxfo...J.P. Reimann
This paper studies the shadow banking system and its regulation since the global financial crisis of 2008. The shadow banking system is a newly coined term, that is not yet (or only very scarcely) regulated or defined. It has been remarked that the shadow banking sector played a major part in the leading up to the crisis. While regulators have been quick to introduce stricter rules for banks and insurance companies, the shadow banks have been left largely untouched by new regulations.
This paper presents two models of key determinants in the evolution of the shadow banking system. First of all, a shadow banking measure is built from a European perspective. Secondly, information on several variables is retrieved basing their selection in previous literature. Thirdly, those variables are grouped in: 1) the base model: real GDP, Institutional investors’ assets, term-spread, banks’ net interest margin and liquidity; and 2) the extended model: the former five plus an indicator of systemic stress, an index of banking concentration and inflation. Finally, regression analysis on those models is conducted for different countries’ samples. Both OLS and panel data analysis is undergone. Results suggest important and consistent geographical differences in relations between shadow banking and key determinant variables’ effects. Thus, this essay provides financial authorities with a valuable benchmark to which they should pay attention before designing optimal policies seeking to reduce the financial risk that shadow banking entails.
Effect of Liquidity Risk on Performance of Deposit Money Banks in Nigeriaijtsrd
This study examines the effect of the credit risk ratio on the financial performance of deposit money banks in Nigeria. Ex Post Facto research design was employed for the study. Sample sizes of five banks were selected from twenty banks quoted on the Nigerian Stock Exchange. Data were extracted from annual reports and accounts of the selected banks from 2010 to 2019. Using E view statistical tool to test the hypothesis, the study found that credit risk ratio significantly influences the financial performance of quoted deposit money banks in Nigeria It was recommended that bank managers should constantly engage in rigorous credit analysis, checking, default rate, the proportion of non performing loans, regularly or at least quarterly to enable them to maintain high asset quality to enhance the financial performance. Oraka, Azubike O | Ebubechukwu, Jacinta O "Effect of Liquidity Risk on Performance of Deposit Money Banks in Nigeria" Published in International Journal of Trend in Scientific Research and Development (ijtsrd), ISSN: 2456-6470, Volume-5 | Issue-4 , June 2021, URL: https://www.ijtsrd.compapers/ijtsrd42388.pdf Paper URL: https://www.ijtsrd.commanagement/other/42388/effect-of-liquidity-risk-on-performance-of-deposit-money-banks-in-nigeria/oraka-azubike-o
This is a free e-book from the London School of Economics. It includes several stand alone chapters. Each one of them is written by a different expert or professor. The main underlying topics include how to manage and prevent future financial crisis. And, what would be the best financial regulatory framework to do just that.
This study investigated loans default (problems loans) and returns on assets in Nigeria banks, employing the data of five banks for a period of five years (2010-2014), using the ordinary least squares (OLS) regression techniques to check the relationship between problem loans and returns on assets (ROA). The findings shows that a positive and significant relationship at 5% level of significance exist between problem loans and returns on assets, and a negative and significant relationship at 10% level of significance exists between loans and advances and returns on assets in Nigerian banks. A major suggestion is that banks in Nigeria should enhance their capacity in credit analysis and loan administration, while the regulatory authority should pay more attention to banks’ compliance to relevant provisions of Bank and other Financial Institutions Act (1991) and prudential guidelines.
Stephany Griffith Jones - Does new international regulation help crisis prevention. Presentation given at conference on 17/18 November in honour of Sir Richard Jolly
2015 banking outlook: The future is bright, but change your password Grant Thornton LLP
Organic growth will remain elusive, but banks can boost performance by focusing on honing operational efficiencies and shoring up risk management.
Learn more - http://gt-us.co/1uaqYal
This paper presents two models of key determinants in the evolution of the shadow banking system. First of all, a shadow banking measure is built from a European perspective. Secondly, information on several variables is retrieved basing their selection in previous literature. Thirdly, those variables are grouped in: 1) the base model: real GDP, Institutional investors’ assets, term-spread, banks’ net interest margin and liquidity; and 2) the extended model: the former five plus an indicator of systemic stress, an index of banking concentration and inflation. Finally, regression analysis on those models is conducted for different countries’ samples. Both OLS and panel data analysis is undergone. Results suggest important and consistent geographical differences in relations between shadow banking and key determinant variables’ effects. Thus, this essay provides financial authorities with a valuable benchmark to which they should pay attention before designing optimal policies seeking to reduce the financial risk that shadow banking entails.
Effect of Liquidity Risk on Performance of Deposit Money Banks in Nigeriaijtsrd
This study examines the effect of the credit risk ratio on the financial performance of deposit money banks in Nigeria. Ex Post Facto research design was employed for the study. Sample sizes of five banks were selected from twenty banks quoted on the Nigerian Stock Exchange. Data were extracted from annual reports and accounts of the selected banks from 2010 to 2019. Using E view statistical tool to test the hypothesis, the study found that credit risk ratio significantly influences the financial performance of quoted deposit money banks in Nigeria It was recommended that bank managers should constantly engage in rigorous credit analysis, checking, default rate, the proportion of non performing loans, regularly or at least quarterly to enable them to maintain high asset quality to enhance the financial performance. Oraka, Azubike O | Ebubechukwu, Jacinta O "Effect of Liquidity Risk on Performance of Deposit Money Banks in Nigeria" Published in International Journal of Trend in Scientific Research and Development (ijtsrd), ISSN: 2456-6470, Volume-5 | Issue-4 , June 2021, URL: https://www.ijtsrd.compapers/ijtsrd42388.pdf Paper URL: https://www.ijtsrd.commanagement/other/42388/effect-of-liquidity-risk-on-performance-of-deposit-money-banks-in-nigeria/oraka-azubike-o
This is a free e-book from the London School of Economics. It includes several stand alone chapters. Each one of them is written by a different expert or professor. The main underlying topics include how to manage and prevent future financial crisis. And, what would be the best financial regulatory framework to do just that.
This study investigated loans default (problems loans) and returns on assets in Nigeria banks, employing the data of five banks for a period of five years (2010-2014), using the ordinary least squares (OLS) regression techniques to check the relationship between problem loans and returns on assets (ROA). The findings shows that a positive and significant relationship at 5% level of significance exist between problem loans and returns on assets, and a negative and significant relationship at 10% level of significance exists between loans and advances and returns on assets in Nigerian banks. A major suggestion is that banks in Nigeria should enhance their capacity in credit analysis and loan administration, while the regulatory authority should pay more attention to banks’ compliance to relevant provisions of Bank and other Financial Institutions Act (1991) and prudential guidelines.
Stephany Griffith Jones - Does new international regulation help crisis prevention. Presentation given at conference on 17/18 November in honour of Sir Richard Jolly
2015 banking outlook: The future is bright, but change your password Grant Thornton LLP
Organic growth will remain elusive, but banks can boost performance by focusing on honing operational efficiencies and shoring up risk management.
Learn more - http://gt-us.co/1uaqYal
Effect of Liquidity Risk on the Profitability of Mortgage Banks in Nigeriaijtsrd
The study was inspired by the liquidity risk that the Nigerian mortgage banking business faces in terms of profitability. As a result, the study investigates the impact of liquidity risk on the profitability of Nigerian mortgage banks. This research effort was carried out using secondary data and an ex post facto research design. The regression statistical technique in the Statistical Package for Social Sciences SPSS Version 22.0 was used to assess data derived from the financial statements of listed mortgage banks on the Nigerian Stock Exchange NSE . The results of the analysis demonstrate that Loan to Deposit has a substantial impact on mortgage banks net interest margins in Nigeria, and that Current Ratio has a significant impact on mortgage banks net interest margins in Nigeria. It was so recommended, among other things, that bank management adopt sound lending policies and maintain a sufficient balance between loans and deposits, because bank profit is largely dependent on deposits mobilized and liquidity created through loans given. Ekwueme, Chizoba M | Onakeke, Newman "Effect of Liquidity Risk on the Profitability of Mortgage Banks in Nigeria" Published in International Journal of Trend in Scientific Research and Development (ijtsrd), ISSN: 2456-6470, Volume-5 | Issue-5 , August 2021, URL: https://www.ijtsrd.com/papers/ijtsrd46349.pdf Paper URL: https://www.ijtsrd.com/management/accounting-and-finance/46349/effect-of-liquidity-risk-on-the-profitability-of-mortgage-banks-in-nigeria/ekwueme-chizoba-m
Is the System of Shadow Banking in China a risk for the Chinese Financial Sys...Oriol Caudevilla
The shadow banking system in Mainland China has experienced a rapid growth since the global financial crisis, surprisingly rebounding in the first quarter of this year, despite the many efforts by the central bank to curb off-balance activities. Since Chinese regulators discourage lending to certain industries, large state-controlled banks dominate the system (the state provides a great deal of direction to them), the limit of bank loans to deposit is constraining, the need for an alternative system of financing has arisen in China. Shadow banks, for instance, are not subject to bank limits on loan or deposit rates, avoid costly PBOC reserve requirements and, basically, allow many companies that cannot obtain financing through regular bank loans or bonds to obtain such financing. Does shadow banking imply a risk for the whole of the Chinese financial system? Is there a real need for shadow banking activities in China? How can the Chinese authorities curb shadow banking but, at the same time, meet the needs of all these companies that require financial services to be more widely available in China?
Presentation by Toshiya Tsugami, President of Tsugami Workshop, Ltd., at the IAI conference "Xi Jinping’s China: Are Japan and Europe on the same page?" organised in cooperation with the Japanese Embassy in Rome
Financial Assets: Debit vs Equity Securities.pptxWrito-Finance
financial assets represent claim for future benefit or cash. Financial assets are formed by establishing contracts between participants. These financial assets are used for collection of huge amounts of money for business purposes.
Two major Types: Debt Securities and Equity Securities.
Debt Securities are Also known as fixed-income securities or instruments. The type of assets is formed by establishing contracts between investor and issuer of the asset.
• The first type of Debit securities is BONDS. Bonds are issued by corporations and government (both local and national government).
• The second important type of Debit security is NOTES. Apart from similarities associated with notes and bonds, notes have shorter term maturity.
• The 3rd important type of Debit security is TRESURY BILLS. These securities have short-term ranging from three months, six months, and one year. Issuer of such securities are governments.
• Above discussed debit securities are mostly issued by governments and corporations. CERTIFICATE OF DEPOSITS CDs are issued by Banks and Financial Institutions. Risk factor associated with CDs gets reduced when issued by reputable institutions or Banks.
Following are the risk attached with debt securities: Credit risk, interest rate risk and currency risk
There are no fixed maturity dates in such securities, and asset’s value is determined by company’s performance. There are two major types of equity securities: common stock and preferred stock.
Common Stock: These are simple equity securities and bear no complexities which the preferred stock bears. Holders of such securities or instrument have the voting rights when it comes to select the company’s board of director or the business decisions to be made.
Preferred Stock: Preferred stocks are sometime referred to as hybrid securities, because it contains elements of both debit security and equity security. Preferred stock confers ownership rights to security holder that is why it is equity instrument
<a href="https://www.writofinance.com/equity-securities-features-types-risk/" >Equity securities </a> as a whole is used for capital funding for companies. Companies have multiple expenses to cover. Potential growth of company is required in competitive market. So, these securities are used for capital generation, and then uses it for company’s growth.
Concluding remarks
Both are employed in business. Businesses are often established through debit securities, then what is the need for equity securities. Companies have to cover multiple expenses and expansion of business. They can also use equity instruments for repayment of debits. So, there are multiple uses for securities. As an investor, you need tools for analysis. Investment decisions are made by carefully analyzing the market. For better analysis of the stock market, investors often employ financial analysis of companies.
Exploring Abhay Bhutada’s Views After Poonawalla Fincorp’s Collaboration With...beulahfernandes8
The financial landscape in India has witnessed a significant development with the recent collaboration between Poonawalla Fincorp and IndusInd Bank.
The launch of the co-branded credit card, the IndusInd Bank Poonawalla Fincorp eLITE RuPay Platinum Credit Card, marks a major milestone for both entities.
This strategic move aims to redefine and elevate the banking experience for customers.
The Evolution of Non-Banking Financial Companies (NBFCs) in India: Challenges...beulahfernandes8
Role in Financial System
NBFCs are critical in bridging the financial inclusion gap.
They provide specialized financial services that cater to segments often neglected by traditional banks.
Economic Impact
NBFCs contribute significantly to India's GDP.
They support sectors like micro, small, and medium enterprises (MSMEs), housing finance, and personal loans.
Poonawalla Fincorp and IndusInd Bank Introduce New Co-Branded Credit Cardnickysharmasucks
The unveiling of the IndusInd Bank Poonawalla Fincorp eLITE RuPay Platinum Credit Card marks a notable milestone in the Indian financial landscape, showcasing a successful partnership between two leading institutions, Poonawalla Fincorp and IndusInd Bank. This co-branded credit card not only offers users a plethora of benefits but also reflects a commitment to innovation and adaptation. With a focus on providing value-driven and customer-centric solutions, this launch represents more than just a new product—it signifies a step towards redefining the banking experience for millions. Promising convenience, rewards, and a touch of luxury in everyday financial transactions, this collaboration aims to cater to the evolving needs of customers and set new standards in the industry.
what is the future of Pi Network currency.DOT TECH
The future of the Pi cryptocurrency is uncertain, and its success will depend on several factors. Pi is a relatively new cryptocurrency that aims to be user-friendly and accessible to a wide audience. Here are a few key considerations for its future:
Message: @Pi_vendor_247 on telegram if u want to sell PI COINS.
1. Mainnet Launch: As of my last knowledge update in January 2022, Pi was still in the testnet phase. Its success will depend on a successful transition to a mainnet, where actual transactions can take place.
2. User Adoption: Pi's success will be closely tied to user adoption. The more users who join the network and actively participate, the stronger the ecosystem can become.
3. Utility and Use Cases: For a cryptocurrency to thrive, it must offer utility and practical use cases. The Pi team has talked about various applications, including peer-to-peer transactions, smart contracts, and more. The development and implementation of these features will be essential.
4. Regulatory Environment: The regulatory environment for cryptocurrencies is evolving globally. How Pi navigates and complies with regulations in various jurisdictions will significantly impact its future.
5. Technology Development: The Pi network must continue to develop and improve its technology, security, and scalability to compete with established cryptocurrencies.
6. Community Engagement: The Pi community plays a critical role in its future. Engaged users can help build trust and grow the network.
7. Monetization and Sustainability: The Pi team's monetization strategy, such as fees, partnerships, or other revenue sources, will affect its long-term sustainability.
It's essential to approach Pi or any new cryptocurrency with caution and conduct due diligence. Cryptocurrency investments involve risks, and potential rewards can be uncertain. The success and future of Pi will depend on the collective efforts of its team, community, and the broader cryptocurrency market dynamics. It's advisable to stay updated on Pi's development and follow any updates from the official Pi Network website or announcements from the team.
Falcon stands out as a top-tier P2P Invoice Discounting platform in India, bridging esteemed blue-chip companies and eager investors. Our goal is to transform the investment landscape in India by establishing a comprehensive destination for borrowers and investors with diverse profiles and needs, all while minimizing risk. What sets Falcon apart is the elimination of intermediaries such as commercial banks and depository institutions, allowing investors to enjoy higher yields.
when will pi network coin be available on crypto exchange.DOT TECH
There is no set date for when Pi coins will enter the market.
However, the developers are working hard to get them released as soon as possible.
Once they are available, users will be able to exchange other cryptocurrencies for Pi coins on designated exchanges.
But for now the only way to sell your pi coins is through verified pi vendor.
Here is the telegram contact of my personal pi vendor
@Pi_vendor_247
How to get verified on Coinbase Account?_.docxBuy bitget
t's important to note that buying verified Coinbase accounts is not recommended and may violate Coinbase's terms of service. Instead of searching to "buy verified Coinbase accounts," follow the proper steps to verify your own account to ensure compliance and security.
USDA Loans in California: A Comprehensive Overview.pptxmarketing367770
USDA Loans in California: A Comprehensive Overview
If you're dreaming of owning a home in California's rural or suburban areas, a USDA loan might be the perfect solution. The U.S. Department of Agriculture (USDA) offers these loans to help low-to-moderate-income individuals and families achieve homeownership.
Key Features of USDA Loans:
Zero Down Payment: USDA loans require no down payment, making homeownership more accessible.
Competitive Interest Rates: These loans often come with lower interest rates compared to conventional loans.
Flexible Credit Requirements: USDA loans have more lenient credit score requirements, helping those with less-than-perfect credit.
Guaranteed Loan Program: The USDA guarantees a portion of the loan, reducing risk for lenders and expanding borrowing options.
Eligibility Criteria:
Location: The property must be located in a USDA-designated rural or suburban area. Many areas in California qualify.
Income Limits: Applicants must meet income guidelines, which vary by region and household size.
Primary Residence: The home must be used as the borrower's primary residence.
Application Process:
Find a USDA-Approved Lender: Not all lenders offer USDA loans, so it's essential to choose one approved by the USDA.
Pre-Qualification: Determine your eligibility and the amount you can borrow.
Property Search: Look for properties in eligible rural or suburban areas.
Loan Application: Submit your application, including financial and personal information.
Processing and Approval: The lender and USDA will review your application. If approved, you can proceed to closing.
USDA loans are an excellent option for those looking to buy a home in California's rural and suburban areas. With no down payment and flexible requirements, these loans make homeownership more attainable for many families. Explore your eligibility today and take the first step toward owning your dream home.
how can I sell pi coins after successfully completing KYCDOT TECH
Pi coins is not launched yet in any exchange 💱 this means it's not swappable, the current pi displaying on coin market cap is the iou version of pi. And you can learn all about that on my previous post.
RIGHT NOW THE ONLY WAY you can sell pi coins is through verified pi merchants. A pi merchant is someone who buys pi coins and resell them to exchanges and crypto whales. Looking forward to hold massive quantities of pi coins before the mainnet launch.
This is because pi network is not doing any pre-sale or ico offerings, the only way to get my coins is from buying from miners. So a merchant facilitates the transactions between the miners and these exchanges holding pi.
I and my friends has sold more than 6000 pi coins successfully with this method. I will be happy to share the contact of my personal pi merchant. The one i trade with, if you have your own merchant you can trade with them. For those who are new.
Message: @Pi_vendor_247 on telegram.
I wouldn't advise you selling all percentage of the pi coins. Leave at least a before so its a win win during open mainnet. Have a nice day pioneers ♥️
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#pinetwork
The secret way to sell pi coins effortlessly.DOT TECH
Well as we all know pi isn't launched yet. But you can still sell your pi coins effortlessly because some whales in China are interested in holding massive pi coins. And they are willing to pay good money for it. If you are interested in selling I will leave a contact for you. Just telegram this number below. I sold about 3000 pi coins to him and he paid me immediately.
Telegram: @Pi_vendor_247
Shadow Banking: Implications for Financial Stability and Economic Rebalancing in China
1. Shadow Banking:
Implications for Financial
Stability and Economic
Rebalancing in China
Prepared for the 12th International Post
Keynesian Conference, Kansas City
Yan Liang
Willamette University
2. Outline
1. Fast Growth and Increasing Size of Shadow Banks;
2. Shadow Banks: Major Institutions and Activities;
3. Causes of Shadow Banking Growth;
4. Shadow Banking, Credit Expansion and Financial
Fragility;
5. Shadow Banking and Macroeconomic Rebalancing;
6. Conclusions
3. Estimates of China’s Shadow Banks
Date RMB (tn) USD (tn) % of 2012 GDP
GFSecurities 12/17/12 30 4.8 57%
Citi Research 1/11/13 28 4.5 54%
Barclays Dec. 2012 25.6 4.1 49%
Hua Tai Securities 12/14/12 25 4 48%
UBS 10/16/12 13.7-24.4 2.2-3.9 26-46%
ANZ Bank End 2013 30 4.9 51%
Bank of America
Merrill Lynch 7/6/12 14.5 2.3 28%
Source: Federal Reserve of San Francisco (2013); The Economist (2014)
4. Although the size of the shadow banks is still relatively small,
the sector has experienced immense growth since 2009;
Shadow banks have quadrupled since 2008, with an
annualized growth rate of 34% since the end of 2010.
According to Financial Stability Board (2013), the size (as a
percent of GDP) of China’s non-bank financial intermediary
(a proxy for “shadow banks”) grew by 45% in 2012, the
highest among all 25 jurisdiction it examines.
5. Shadow Banks: Major Institutions and Activities
Shadow banking system consists of a web of specialized financial
institutions that conduct credit, maturity, and liquidity transformation
without direct, explicit access to public backstops (Adrian et al 2013).
shadow banks include:
Bank off-balance-sheet activities: informal securitization of loans,
undiscounted bank acceptance bills and other credit-based assets through
wealth management products (WMPs);
Bank acceptance bills are issued by banks (upon the request of firms) that
provide unconditional payment to the holder of the bills at maturity;
Trusts and trust-bank cooperation: trust loans, entrusted loans, WMPs;
Trust loans are loans arranged by trust companies and entrusted loans are
lending from one company to another through the intermediaries of banks or
trusts;
Numerous others: leasing companies, finance companies, loan guarantee
companies; micro finance lenders; underground banks; person to person
lending; and pawn shops.
“Total Social Financing” by the official account provides an imperfect
measure of shadow banks (Borst 2011).
6. Growth of Total Social Financing, by Components, 2013
RMB Loans
53%
Domestic Equity
Financing of Non-financial
Enterprises
Corporate Bonds
1%
Trust Loans
11%
11%
Entrusted Loans
15%
Foreign
Currency Loans
4%
Undiscounted Bankers'
Acceptances
5%
Note: Increase in the TSF was 17.32 trillion yuan in November 2013.
Source: People’s Bank of China, Statistical Bureau of China
7. Trusts: now second largest non-bank financial institutions,
asset under management (AUM) has increased fivefold since
2010 to reach 12.5 tn yuan as of 2014Q2. Trust loans
accounted for 11% of TSF in 2013 (fell to 4% in the first five
months of 2014). They also intermediate “entrusted loans”.
Trusts assist in “disguised” interbank lending, so trust
products can be recorded as interbank assets that require less
bank capital. There was a fivefold increase in trust products
distributed through banks during 2007-9.
Wealth Management Product (WMP): informal securitization
of loans and other credit-based assets to attract and retain
deposits and to evade loan-to-deposit and capital
requirements in order to expand lending. As of 2013Q3,
outsandingWMP reached 9.9 trillion yuan, or 18% of GDP.
8. Outstanding Wealth Management Products (RMB Billions)
20
18
16
14
12
10
8
6
4
2
0
10000
9000
8000
7000
6000
5000
4000
3000
2000
1000
0
RMB Billions
%
and as Percentage of GDP
WMP outstanding
Percent of GDP
11. 3. Causes of Shadow Bank Development
“Financial Repression”? WMPs are often considered as safe as
bank deposits. As long as WMPs are offered by banks and pay a
higher interest rate than bank deposits, there will be demand. So
even if interest rates are liberalized, there will be still high demand
for WMPs. So financial repression is not the only answer.
Demand-side: savers/investors seek high yield investment venues
(underdeveloped bonds and equity markets); small- and medium-sized
enterprises need financing;
Supply-side: banks’ incentives to evade regulations (loan quota,
capital requirements, sectoral exposures, etc.); cash rich SOEs
(with access to cheap bank credit) engage in “carry trade”;
Surge in shadow banking driven by credit expansion in 2009 then
tightening in 2010.
13. 4. Shadow Banks, Credit Expansion and
Financial Fragility
Institutional Risks: Trusts
Low capital requirement (200 mn yuan or 10% of net assets
in 2010) to set up trusts; high leverage ratio (40X!) (IMF
2014); very opaque - only 29 (out of 66 registered trusts)
disclose capital, and most (except for two publicly listed)
failed to report returns (China Trustee Association);
Make risky investment to infrastructure, real estate, local
gov’t funding vehicles (LGFVs) and industries with excess
capacity;
Fund pooling and “ever-greening” WMPs -issue new WMPs
and use the proceeds to either pay for previous obligations or
continue lending to dodge non-performing loans. .
14. Trusts: AUM to Equity Ratio
45
40
35
30
25
20
15
10
5
0
All
Top 10 by AUM
2004 2005 2006 2007 2008 2009 2010 2011 2012
15. Financial Fragility: Institutional Risks, Cont’d
Bank WMPs:
Majority are loan-based and the number of loans is limited; so
credit risk diversification is weak;
No rating system, no tranching based on credit risk, no
secondary market; so liquidity risk is excessive;
Maturity of WMPs is shortening. In 2007, less than 10% were
less than 90 days, and more than 50% were a year and above;
by end 2010, about 40% were less than 90 days and <20% were
a year or over; but funds raised could be invested in long term
projects, e.g. real estate; so again, liquidity risk is excessive;
Banks often act alone in originating, distributing, custodying
and managing WMPs; fund pooling; contagion risks are high –
Xiao Gang “ponzi scheme”;
16. China’s overall debt rose to 142 trillion yuan ($22.8 trillion), or 245% of GDP
as of 2014Q1, up from roughly 150% in 2008 (Standard Chartered 2014);
17. Financial Fragility: Systemic Risks
China’s overall debt rose to 142 trillion yuan ($22.8 trillion), or 245% of GDP as of
2014Q1, up from roughly 150% in 2008 (Standard Chartered 2014);
Shadow banks contributed greatly to credit expansion
100
80
60
40
20
0
-20
Bank loans
Corporate bonds
Entrusted loans
Trust loans
Bank acceptance bills
Growth Rate of Credit, by Type, y-o-
y
19. Upper panel: Private Credit (in percentage
of GDP) in Selected Countries, 2012 (or
latest data available)
Lower Panel: Private Credit Growth (5 year
change in private credit as % of nominal GDP)
in Selected Countries
20. 7
6
5
4
3
2
1
0
20
18
16
14
12
10
8
6
4
2
0
Share of loss-making
companies (based on
negative RoA)
Median return on assets
(right scale)
Chinese Corporate Sector Performance
Source: IMF (2013)
21. Systemic Risk
“5-30 rule”? China’s situation resembles 66 pp growth in
Thailand and 40 pp growth in Malaysia five years prior to the
Asian crisis; and 46 pp growth in the US in 2002-2007
(Goldman Sachs 2013);
Increasing indebtedness, coupled with potential slower
growth and worsened corporate profitability, may make
businesses more susceptible to financial distress and failure,
and it also increases the level of non performing loans (NPLs)
for the banking sector.
22. But still, China is unique
State-owned banks dominate; central govt has the
capacity to write off bad debt and recapitalize banks.
Think the late 1990s;
WMPs as the weakest link; but (ultimate) investors
mostly purchase with own savings, low leverage and
low risks of distress sales and debt deflation;
Tight capital control; external debt is 7.5% of GNI;
$3.4 trillion fx reserves. No external calls.
23. 5. Shadow Banking and Macroeconomic
Rebalancing
Two “Merits” of shadow banks: lending to SMEs (Companies borrowed
716 billion yuan via entrusted loans in 2014Q1; corporate bond
issuance over the same period amounted to only 385 billion yuan (The
Economist 2014)) and WMPs boost HH income and hence consumption
(Goldman Sachs 2013); or really??
“Credit multiplier” (ratio of nominal GDP growth to total credit growth)
decreased from an average of .8 in 2003-8 to .4 since 2009. Half of trust loans
in 2012 were to finance new investment, the other half for refinancing old
debt that funded past projects but were no longer contributing to economic
growth;
Sectoral exposure of shadow banking may further contribute to imbalances;
local gov’t, property developers, and industries with surplus capacity
accounted for 70% of trust loans in 2012 (KPMG 2012);
Increasing financing costs and higher debt servicing costs reduce profitability
and heighten refinancing needs. Zhang (2013): charge 24% annual rate and
still have unlimited demand for loans; 4 times “prime” rate and much higher
than the 15% average financing costs faced by SMEs.
24. Median EBIT/Interest Expense by Firm Leverage
Source: IMF (2013)
12
10
8
6
4
2
0
1 1001
2012
2010
Rolling window of 200 companies ranked by debt/asset
ratio
(low high)
25. Annual Growth Rates of Interest Expense (2008-12 5 Year Average)
China
Poland
Chile
South Africa
Mexico
Russia
Turkey
India
Philippines
Indonesia
Thailand
Colombia
Malaysia
Brazil
Argentina
Source: IMF (2013)
-5 0 5 10 15 20 25 30
26. Wealth effect may be insignificant: first, uneven distribution of
WMP holdings; second, income effect is probably inferior to
substitution effect; and third, riskiness of WMPs renders them a
less desirable tool to boost consumption.
Source: World Bank (2014)
27. 6. Conclusions
Rising size of shadow banks and significant impacts
on the financial and productive sectors; more research
is called for;
Regulatory options: prohibit shadow banks;
patchwork, reactive and fragmented regulatory
changes (currently implemented); assimilate shadow
banks into traditional banking system (some failed
experiments).