China’s War on Risk Has Banks Fleeing Shadowy Wealth Products
- Interbank cross-holdings of WMPs more than halved last year
- Higher rates make purchasing other bank WMPs less profitable
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Chinese regulators appear to be winning their war against risk in one of the more dangerous corners of the country’s shadow banking industry -- the so-called wealth management products that banks buy from each other in a search for easy profits.
Interbank holdings of WMPs more than halved last year, to 3.25 trillion yuan ($514 billion) in December from 6.65 trillion yuan a year earlier, according to the annual report of China Central Depository & Clearing Co., an industry body. That suggests higher interest rates and increased scrutiny by regulators are deterring Chinese banks from their previous practice of using cheap interbank borrowing to invest in each others’ higher-yielding WMPs.