Late last Friday, we reported that several hours after the market close, China's financial regulator and central bank made a shocking announcement: for the first time in nearly 30 year, China would take control of a bank, in this case the troubled inner Mongolia-based Baoshang Bank, due to the serious credit risks it poses.
In short, what has just transpired is a bail-out with Chinese bail-in characteristics, and in other words, this may well have been the first domino to fall in China's banking sector which earlier today reported a record 268.5 trillion yuan in liabilities and 246.2 trillion yuan in assets, both up roughly 8% Y/Y, and well over double the size of the American banking sector.
Securities from Bank of Zhengzhou and Huishang Bank also dropped.
Now that Baoshang is insolvent, and the de facto canary in Chinese bank failure coalmine the question is how to restructure its insolveny balance sheet: the bank has more than 60 billion yuan of negotiable certificates of deposit and 6.5 billion yuan of subordinated bonds outstanding, according to data compiled by Bloomberg.
As Deutsche Bank further explained, the banks most exposed to a shut down in this "shadow funding" pathway are medium-sized and small banks, for whom as of 1H16, wholesale funding made up 31% and 23%, a number that has risen substantially in the interim period.
Translation: nobody knows yet if this bank failure will result in a bank run, even as the market is clearly recoiling from the bail out.
If a bank run does indeed materialize, and some of those $35 trillion in Chinese bank liabilities flee... well, not only are all bets off, but Trump can celebrate an early victory in the US-China trade war.
https://www.zerohedge.com/news/2019-05-27/big-wake-call-chinese-bond-market-roiled-first-ever-bank-failure
In short, what has just transpired is a bail-out with Chinese bail-in characteristics, and in other words, this may well have been the first domino to fall in China's banking sector which earlier today reported a record 268.5 trillion yuan in liabilities and 246.2 trillion yuan in assets, both up roughly 8% Y/Y, and well over double the size of the American banking sector.
Securities from Bank of Zhengzhou and Huishang Bank also dropped.
Now that Baoshang is insolvent, and the de facto canary in Chinese bank failure coalmine the question is how to restructure its insolveny balance sheet: the bank has more than 60 billion yuan of negotiable certificates of deposit and 6.5 billion yuan of subordinated bonds outstanding, according to data compiled by Bloomberg.
As Deutsche Bank further explained, the banks most exposed to a shut down in this "shadow funding" pathway are medium-sized and small banks, for whom as of 1H16, wholesale funding made up 31% and 23%, a number that has risen substantially in the interim period.
Translation: nobody knows yet if this bank failure will result in a bank run, even as the market is clearly recoiling from the bail out.
If a bank run does indeed materialize, and some of those $35 trillion in Chinese bank liabilities flee... well, not only are all bets off, but Trump can celebrate an early victory in the US-China trade war.
https://www.zerohedge.com/news/2019-05-27/big-wake-call-chinese-bond-market-roiled-first-ever-bank-failure
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