Tag Archives: Chinese banks

The PBC’s exchange rate policy, the link to credit multipliers, and capital asset price volatility

With the US Federal Reserve beginning to contemplate shrinking the size of its balance sheet, it is a good time to review the evolution of central banks’ balance sheet since the Global Financial Crisis (GFC) and what they imply for … Continue reading

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The evolution of the Chinese banking system: Changing asset composition (Part 1)

Abstract: Since the Global Financial Crisis (GFC) there has been a material change in the way the Chinese banking system is channeling credit to the real economy. Prior to the GFC, most Chinese firms receive bank credit in the form of a loan. In subsequent years, many banks went from being in the business of loan generation to the security investment. The change the form of banking assets has a material impact in the way banks are accounting for the credit risk, provisioning and calculation of regulatory metrics. This change came because of stringent regulatory requirements the Chinese Banking Regulatory Commission (CBRC) placed on banks resulting in regulatory arbitrage. The process of regulatory arbitrage has led to the banking system outgrowing the current regulatory framework. The official metrics and rules that the CBRC presently use is outdated and no longer captures the rising risk in the system. Continue reading

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