China’s money market squeeze has elevated the importance of the stock exchange repo market, where non-bank financial institutions are the primary borrowers. Volumes have risen throughout the last year, particularly for 7-day borrowing, and rates are currently much higher than in the purely inter-bank repo market. Divergence between these market rates highlights growing counterparty risk concerns and the likelihood of weakening asset growth from banks’ funding of non-bank institutions.

Posted August 1, 2017
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