1/5
Economically troubled Liaoning province is merging 12 banks into one “first-class urban commercial bank” that has a “clear shareholding structure, abundant capital adequacy, tight internal risk control and fine governance.”
caixinglobal.com/2021-01-29/lia…
Economically troubled Liaoning province is merging 12 banks into one “first-class urban commercial bank” that has a “clear shareholding structure, abundant capital adequacy, tight internal risk control and fine governance.”
caixinglobal.com/2021-01-29/lia…
2/5
While the provincial government hasn't given any information about which banks will be merged, what their new structure will entail, and how they will be capitalized, there is an important lesson here about the positive feedback between GDP growth and bank expansion.
While the provincial government hasn't given any information about which banks will be merged, what their new structure will entail, and how they will be capitalized, there is an important lesson here about the positive feedback between GDP growth and bank expansion.
3/5
When the economy is growing rapidly, banks learn to expand credit too generously and encourage borrowers to take on balance-sheet risk, both of which further encourage growth. The problem is that once the economy begins to slow, this highly pro-cyclical process goes..
When the economy is growing rapidly, banks learn to expand credit too generously and encourage borrowers to take on balance-sheet risk, both of which further encourage growth. The problem is that once the economy begins to slow, this highly pro-cyclical process goes..
4/5
into reverse: slower growth gets overextended banks into trouble, and the resulting rise in the debt burden and contraction in lending puts even more downward pressure on growth.
We are already seeing this start to happen in China's more troubled provinces. Beijing will...
into reverse: slower growth gets overextended banks into trouble, and the resulting rise in the debt burden and contraction in lending puts even more downward pressure on growth.
We are already seeing this start to happen in China's more troubled provinces. Beijing will...
5/5
probably respond by increasingly diverting resources from stronger provinces, but while this tactic will limit the overall slowdown in the country's real economy, it will also extend the ultimate adjustment period.
probably respond by increasingly diverting resources from stronger provinces, but while this tactic will limit the overall slowdown in the country's real economy, it will also extend the ultimate adjustment period.
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