Liquidity Crunch: China banking system ‘stable’

SHANGHAI: China’s chief bank regulator said Saturday that a recent liquidity squeeze would not hurt the stability of the banking system.

Head of the China Banking Regulatory Commission, Shang Fulin, said that the overall banking system had adequate liquidity, echoing comments by the central bank earlier in the week. For three weeks, funds have been in short supply on China’s interbank market, and the interest rates banks charge to lend to each other have surged to record highs. Domestic financial institutions had excess reserves of 1.5 trillion Yuan ($244 billion), reassured Shang on Friday.

There are worries tight liquidity among banks could prompt them to tighten lending, which threatens to carry over into the real economy, especially in view of large government debts.

Published in The Express Tribune, June 30^th, 2013.

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