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China banks risk Lehman moment as wholesale borrowing rises 

November 29, 2016

Gabriel Wildau, Financial Times

Chinese banks are increasingly reliant on funding sources that western peers used before the financial crisis, leading investors and analysts to warn that China’s financial system could be vulnerable to a Lehman Brothers-style collapse.

Their use of volatile wholesale borrowing to fund balance sheets has particularly worried analysts, who warn that banks could be left without the stability of a broad retail deposit base and unable to raise cash when most needed.

Concern over China’s rising debt has already become widespread among investors and policymakers. These concerns have focused on banks’ declining asset quality as defaults rise but many analysts believe the bigger risk comes from the liabilities carried on bank balance sheets. 

“The real issue isn’t the volume of debt but rather the liability-side ‘plumbing’ that underlies the debt boom,” says Jonathan Anderson, principal at Emerging Advisors Group and longtime China-watcher. “If there’s going to be financial crisis in China, this is where it will come from.”

Chinese lenders have traditionally relied on deposits from households and corporations to fund loans and other investments, providing a buffer against market turmoil. Read more

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