Is shadow banking a serious threat in emerging markets? C. P. Chandrasekhar and Jayati Ghosh

Everyone seems to have woken up to the fact that global debt levels are too high and portent difficulties ahead. As Figure 1 indicates, the levels of credit to GDP, which were so high as to be unsustainable and resulted in the big crisis of 2008, have increased even more since then. There was a phase of deleveraging in the advanced economies until around 2014, and in developing countries and emerging markets until 2011, but since then, credit/debt has been expanding again. So much so that the credit GDP levels in 2017 were 15 per cent higher than in 2008…

Shadow Banking in South-East Asia Lim Mah Hui

Significance Shadow banking was responsible for triggering the recent financial crisis in 2007. Since then the growth of shadow banking worldwide, after falling briefly post crisis, has risen to $71 trillion at end of 2012, representing half of global total banking assets and 117% of GDP. Shadow banking is critical because while it represents an alternative source of financing, it also increases systemic risks to the financial system. While regulators have been busy putting in place more regulations for the formal banking sector, not as much has been done for the shadow banking sector. In fact, one main reason for…

Financial Strains in the “New” China C.P. Chandrasekhar

Early in March, the largest private steel producer in China, Shanxi Haixin Iron and Steel Group, defaulted on loans from Minsheng Bank estimated at 20 billion yuan ($3.57 billion) that had fallen due. This set off one more spurt of speculation on whether we are seeing the beginning of the end of the Chinese ‘growth miracle’, precipitated by an internal meltdown of the financial sector. The international financial media is replete with stories on the fragile foundations of China’s rapidly built edifice of bond-based debt and the possibilities of a crisis. There are a number of reasons why an event…

China’s Exploding Debt C.P. Chandrasekhar

If the international media are to be believed the world, still struggling with recession, is faced with a potential new threat emanating from China. Underlying that threat is a rapid rise in credit provided by a “shadow banking” sector to developers in an increasingly fragile property market. Efforts to address the property bubble or reduce fragility in the financial system can slow China’s growth substantially, aggravating global difficulties. The difficulty here is that the evidence is patchy and not always reliable. According to one estimate, since the post-crisis stimulus of 2008, total public and private debt in China has risen…

Shadow Banking in China C P Chandrasekhar and Jayati Ghosh

On October 10, the Chinese government announced that it will increase its stakes in the four largest commercial banks, which are already largely public-owned. The move is designed to ''support the healthy operations and development of key state-owned financial institutions and stabilise the share prices of state-owned commercial banks''. But why was this move considered necessary at all? In the period just before this, investors were dumping Chinese bank shares, anticipating a slowing down not just of the economy as a whole, but in particular the property market, which had experienced a bubble of massive proportions. But the underlying concern…

The Dragon’s Shadow Jayati Ghosh

On October 10, the Chinese government announced that it will increase its stakes in the four largest commercial banks, which are already largely public-owned. The move is designed to ''support the healthy operations and development of key state-owned financial institutions and stabilise the share prices of state-owned commercial banks''. But why was this move considered necessary at all? Recently, investors have been dumping Chinese bank shares, anticipating a slowing down not just of the economy as a whole, but in particular the property market, which had experienced a bubble of massive proportions. But the underlying concern about the health of…