Lack of formal bank resolution framework a concern for China

Author: Karry Lai | Published: 30 Jul 2019

There is widespread concern about the futures of small and medium local Chinese banks that lack strong and formal governance controls.

Troubled Inner Mongolia-based Baoshang Bank was taken over this May by the People’s Bank of China (PBoC) and the China Banking and Insurance Regulatory Commission (CBIRC) because it posed a serious credit risk. While discussions for a formal bank resolution framework were tabled back in 2015, they have not resurfaced, leading to market uncertainty over other banks that may crack under liquidity pressures.

As a takeover arrangement, there is no state ownership. Rather, the PBoC entrusted China Construction Bank to manage Baoshang’s day-to-day operations for one year. The principal and interest of all individual...