MIT professor Yasheng Huang talks about the potential dangers of
China’s shadow banking system (CSBS).
Globally, a study of the 11 largest national shadow banking systems found that they totalled to $50,000bn in 2007, fell to $47,000bn in 2008 but by late 2011 had climbed to $51,000bn, just over its estimated size before the crisis. Overall, the world wide SBS totalled to about $60 trillion as of late 2012
The shadow banking system is a key component of the U.S. economy, but the financial crisis has frozen it solid. Senior Editor Paddy Hirsch explains what shadow banking is and why it’s important enough to warrant its own bailout, called the Term Asset-Backed Securities Loan Facility, or TALF.
Shadow Banking Explained in Detail
NO CHINA BUBBLE OR DOES THE FACTS SAY OTHERWISE?
Graphic Source: nextbigfuture.com
China’s Shadow-Banking System
China’s entire shadow-banking system is bigger than just underground borrowing and lending, totaling about $2.4 trillion, a third the size of China’s official loan market, according to Societe Generale SA economist Yao Wei. In addition to informal lending, it includes the off-balance-sheet activities of banks, trust companies, and businesses lending to each other, Yao said. The amount is almost the size of U.S. consumer debt, which exceeded $2.5 trillion as of January, according to the U.S. Federal Reserve.
Ordinary Chinese savers also fuel the country’s shadow- banking system. They have few legal options if they want to earn a return that beats inflation, which hit 5.4 percent in 2011. The government sets China’s current ceiling for savings account interest rates at 3.5 percent, a figure that has trailed inflation for two straight years as of January. Wu offered interest rates of as much as 0.5 percent a day to attract investors, according to Xinhua.
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