First published: Financial Times, 30-03-2023
In the US and Europe, the costs of regulatory failure and financial instability have been illustrated painfully by the implosions of Silicon Valley Bank, Credit Suisse and other smaller banks. The lessons from these episodes should not just be drawn in these regions. We would do well to note that China’s globally important financial system has some of the same vulnerabilities as well as many of its its own making. And such risks may be heightened by a recent regulatory shake-up.
China has been dealing with failures of several smaller and regional banks over the past few years that notably triggered protests by depositors at banks in Henan province. These failures seem to have abated for the time being, but the People’s Bank of China regarded some 316 such banks as high risk at the end of 2021, according to its quarterly review.