SHIBOR Shenanigans

by Marilou Moursund on July 2, 2013

in Banks,Foreign Markets,interest rates

Business Insider had an interesting article yesterday on the big spike in interest rates in China in mid June.  From the linked article:

Basically (and this was suspected at the time) the People’s Bank of China let  the rates spike as a tough measure to induce a level of tightening and  discipline in the banking system.

What caused the PBOC to do this?

According to a previously undisclosed summary of  a PBOC internal meeting on June 19, the central bank was especially concerned  that in the first 10 days of June, Chinese banks increased lending by 1 trillion  yuan ($163 billion)—an amount the central bank said “had never been seen in  history.” And about 70% of that amount consisted of short-term notes that mostly  don’t show up on banks’ balance sheets—making it easier for the banks to get  around regulatory lending restrictions-—rather than lending the money to  promising companies or projects.

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