With government clearing houses publishing June data on changes in banks’ asset holdings, we can better assess the impact of Baoshang’s seizure on the interbank market. City commercial banks suffered most directly last month from the contraction in NCDs and interbank liabilities, while reducing bond holdings aggressively. NBFIs have also been squeezed, but to a lesser extent after the PBOC provided emergency liquidity assistance. Shadow banking channels have now resumed contracting after stabilizing early in 2019, which will slow overall credit growth. Even as overall liquidity conditions are loose, the liquidity structure within the interbank market is highly imbalanced.
