'The reality is that Beijing doesn’t have the wherewithal to guarantee the future of hundreds of smaller, provincial financial institutions that together sit on 73.4 trillion of yuan of total liabilities.''Compared with behemoths such as the Industrial & Commercial Bank of China, the country’s largest lender, these banks are minnows. Yet collectively, they fund the small and medium enterprises in China’s vast industrial economy. China’s more than 4,000 regional banks, mainly city and rural commercial institutions, held almost 77 trillion yuan in assets, or roughly a quarter of the industry total as of June.
As more of these banks succumb to bad balance sheets and troubled funding markets, fear is growing that the People’s Bank of China lacks a coherent strategy for dealing with them. For all the measures state planners are taking, none addresses the root of small lenders’ weaknesses: their precarious funding and balance sheets.
This is cause for concern — and worse. The absence of a clear recovery and resolution regime not only destabilizes China’s financial system; it also undermines regulatory goals like shoring up the confidence of depositors and the rights of creditors and shareholders. More broadly, with Beijing controlling four companies that sit on the global systemically important financial institutions list, the lack of attention puts the world’s financial system at risk.
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The reality is that Beijing doesn’t have the wherewithal to guarantee the future of hundreds of smaller, provincial financial institutions that together sit on 73.4 trillion of yuan of total liabilities. Now stressed, these institutions have tended to extend themselves beyond their mandates. They have also become warehouses of non-performing assets. Government finances are weakening. Municipal governments and China’s big four commercial banks are strained. The funding gap for local governments could be as wide as 1.5 trillion yuan this year, based on the Ministry of Finance’s estimates. Meanwhile, China has already asked banks to surrender 1.5 trillion yuan in profits to help businesses weather the economic slowdown.'
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China’s Failing Small Banks Are Becoming a Big Problem, October 27, 2020
Context'..the Chinese economy suffers from epic maladjustment..'(Banking Reform) - '..a developing Solvency Problem.'(Banking Reform) - '..my basic definition: A Bubble is a self-reinforcing but inevitably unsustainable inflation.''Markets have been corrupted, while the masses are increasingly disillusioned and insecure.'