Red Flags: Meanwhile In China, Echoes Of Lehman As Interbank Market Freezes
The banks in China are in a perilous place right now, with possible implications for the broader global banking system.
Yes, they have been in a perilous place for decades. Yes, the Chinese government seems to think there is no limit on printing money, but history warns to beware.
One month ago we wrote that in the aftermath of the shocking government May 24 seizure of Baoshang Bank – not shocking because the bank failed as most Chinese banks are insolvent if left to their own devices due to the real, and far higher levels of non-performing loans, but because the government allowed it to happen in the open, sparking fears of who comes next (and when) – the PBOC “finally panicked and injected a whopping net 250 billion yuan ($36 billion) into the financial system via open-market operations, as it fills what traders have dubbed a growing funding gap following the Baoshang failure.”
In retrospect, the PBOC failed to restore confidence in the stability of the Chinese banking system, and since then things have taken a turn for the far worse.