Pick Your Poison for a China Crisis

FT: Small regional banks are weak links in China’s financial system

China’s weakest banks hold 20 per cent of all banking assets and are categorised by an appetite for regulatory arbitrage, significant liquidity risks, and questionable asset quality.

The share of loans to total assets provides an indication of how large a bank’s involvement with estimates involvement with non-bank credit intermediation. In the weakest banks, only 35 per cent of total assets are loans.

What is the remainder? Many Chinese banks evade loan-to-deposit ratio requirements by disguising risky loans as investments on their balance sheets. This means that traditional banking indicators radically understate risk for some Chinese banks.

No matter where a crisis might start, it will end with currency devaluation.