Baoshang Bank collapse threatens China’s economy and may trigger central bank

It is yet to be a “Lehman moment” — where the credit market freezes, banks stop lending to each other and the economy teeters above the abyss —but it has, as Societe Generale’s Wei Yao noted, “triggered severe liquidity tensions in the interbank market”. “Interbank borrowing rates for smaller banks rose after the Baoshang default, and China’s central bank has been busily playing whack-a-mole by injecting cash,” J Capital’s Anne Stevenson-Yang wrote in a recent note to clients. “After this liquidity squeeze — even if it is over soon — financial institutions will keep adjusting to the new paradigm of non-zero counter-party risk in the interbank market, supposedly the safest segment of the financial system.”

Source: mobile.abc.net.au