On Thursday, to little fanfare, China's central bank announced its latest liquidity injection scheme, which many analysts saw as a quasi Quantitative Easing program and a potential precursor to full-blown QE. Just like QE in the US, where financial system liquidity was boosted by the Fed injecting reserves into banks in exchange for sales of Treasurys and MBS, which fungible liquidity was then used for a variety of purposes including directly investing in risk assets as the JPM London Whale fiasco demonstrated, the PBOC announced that it will allow China's primary dealers to swap their holdings of perpetual bonds for central bank bills, and directly use those bonds as collateral to access certain PBOC liquidity operations.
In other words, the PBOC just unveiled a roundabout way of injecting even more "Risk-free" liquidity directly into the system, or as Rabobank's Michael Every writes "Chinese banks, desperate for cash to keep the Ponzi scheme afloat, can issue perpetuals that nobody in their right mind would want to hold; and the PBOC will swap them for its bills."
First, some background: In December, China's financial authorities permitted banks to issue perpetual bonds as a way to bolster their capital base, and on Thursday Bank of China launched the first ever batch of perpetual bonds - which are the functional equivalent of preferred equity as they never have to be repaid - issued by Chinese banks, with an officially approved quota at 40 billion yuan.
China Banking and Insurance Regulatory Commission will also allow Chinese insurance firms to invest in banks' tier 2 capital debt and capital bonds without fixed terms.
China just announced "US banks can start operating there in six months." I am sure useful-idiot headline-followers will say China is opening up.
They probably won't notice the PBOC also announced a Central Bank Bills Swap that will give primary dealers bills they can use as collateral in exchange for a flood of new perpetual bonds that Chinese banks are about to issue, following the lead of the Bank of China.
In other words, Chinese banks, desperate for cash to keep the Ponzi scheme afloat, can issue perpetuals that nobody in their right mind would want to hold; and the PBOC will swap them for its bills.
https://www.zerohedge.com/news/2019-01-25/china-quietly-announces-quasi-qe-keep-ponzi-scheme-afloat
In other words, the PBOC just unveiled a roundabout way of injecting even more "Risk-free" liquidity directly into the system, or as Rabobank's Michael Every writes "Chinese banks, desperate for cash to keep the Ponzi scheme afloat, can issue perpetuals that nobody in their right mind would want to hold; and the PBOC will swap them for its bills."
First, some background: In December, China's financial authorities permitted banks to issue perpetual bonds as a way to bolster their capital base, and on Thursday Bank of China launched the first ever batch of perpetual bonds - which are the functional equivalent of preferred equity as they never have to be repaid - issued by Chinese banks, with an officially approved quota at 40 billion yuan.
China Banking and Insurance Regulatory Commission will also allow Chinese insurance firms to invest in banks' tier 2 capital debt and capital bonds without fixed terms.
China just announced "US banks can start operating there in six months." I am sure useful-idiot headline-followers will say China is opening up.
They probably won't notice the PBOC also announced a Central Bank Bills Swap that will give primary dealers bills they can use as collateral in exchange for a flood of new perpetual bonds that Chinese banks are about to issue, following the lead of the Bank of China.
In other words, Chinese banks, desperate for cash to keep the Ponzi scheme afloat, can issue perpetuals that nobody in their right mind would want to hold; and the PBOC will swap them for its bills.
https://www.zerohedge.com/news/2019-01-25/china-quietly-announces-quasi-qe-keep-ponzi-scheme-afloat
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