Squeeze on Shadow Banks Continues

Chinese regulators’ latest tightening measures toward banks’ cash-type wealth management products (WMPs) indicate that the squeeze on shadow banking business continues, with no signs of a reversal. Banks’ most important marginal sources of liabilities growth came under severe pressure in 2019, and we expect this trend to continue in 2020, adding to smaller banks’ operating difficulties. The PBOC will need to respond to smaller banks’ funding pressures in 2020 by becoming far more generous with liquidity provided via the central bank’s balance sheet.

Posted January 20, 2020
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