Want to stop a bank run? Try zero-COVID
This week, multiple residents in the Chinese province of Henan were surprised when their status on the official COVID app turned red. That means they either tested positive or were suspected of carrying the virus and must quarantine for 14 days. Turns out, most of them were customers of four rural banks that froze a combined $6 billion in deposits a couple of months back, sparking angry protests. Is China weaponizing zero-COVID to keep protesters at home? Well, the ruling Communist Party is certainly very worried about the health of its often fraud-ridden, over-leveraged rural banks. These small lenders account for just 1% of total assets in China's banking system but pose a systemic risk because a run on them could quickly spread to other financial institutions — potentially unleashing a nationwide credit crunch and social unrest. Will the state let them fail or bail them out? Expect something in between, similar to how the government handled the debt crisis of real-estate behemoth Evergrande late last year.
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