China fact of the day

China’s major commercial banks have a funding issue outside Beijing’s control: They’re running low on the U.S. dollars they need for activities both at home and abroad.

The combined dollar liabilities at the big four commercial banks exceeded their dollar assets at the end of 2018, their annual results show—a sharp reversal from just a few years ago. Back in 2013, the four together had around $125 billion more dollar assets than liabilities, but now they owe more dollars to creditors and customers than are owed to them.

Bank of China BACHY -0.66% is by far the greatest contributor to the shift. Once the holder of more net assets in dollars than any other Chinese lender, it ended 2018 owing about $70 billion more in dollar liabilities than it booked in dollar assets. The other three lenders actually finished the year with more dollar assets than liabilities, though Industrial & Commercial Bank of China IDCBY -0.33% had a deficit at the end of 2017.

In its annual report, Bank of China says that its asset-liability imbalance is more than addressed by dollar funding that doesn’t sit on its balance sheet. Instruments like currency swaps and forwards are accounted for elsewhere.

But such off-balance-sheet lending can be flighty. As the Bank for International Settlements notes, the vast majority of currency derivatives mature in under one year, meaning they are up for constant renewal and could evaporate during times of pressure.

Here is the full WSJ piece, via Christopher Balding.

Comments

The truth about Red China has been revealed. The article Wall Street and the Democrats don't want you to read: https://nationalinterest.org/feature/why-america-must-maintain-ideological-dominance-52082

"In explaining “Why We Fight,” the United States must contrast its dynamic, innovative, free, and open society, with the wealthy and increasingly prosperous, but ethnocentric, racist, and closed society of the Chinese. The West went through a Civil Rights Movement to create cultures of anti-racism throughout their societies. In China, the idea of a Civil Rights Movement that would aid the condition of women and minorities, and so undermine Han-supremacy, is unthinkable."

The article Wall Street and the White House dont want you to read I hope you meant.

Criticize the Democrats endlessly all you want, they surely deserve it.

But the White House and the GOP are currently destroying the American Ideology that article refers to. They are clearly equivalent to the Han Dynasty in the article. If the American ideological principles in that article are important to you, it surprises me you're focusing your attention on Wall Street and Democrats, rather than Wall Street and the White House.

It is not that simple. As President Captain Bolsonaro pointed out, God has chosen President Captain Bolsonaro and Mr. Trump to lead the West away from communism.

Did you get arrested in China before? Sometimes the people they release from prison lose some of their organs to illegal harvesting. Judging from your comments, they may have taken your brain.

No they have not. According to many scietusts, Brazilian brains are 30% larger than American ones. My point is the Red Chinese want to enslave rthe West.

That IS much simpler. I guess I'll just have to take his word for it.

"China’s major commercial banks have a funding issue outside Beijing’s control"

"Have a…."

Whoa baby...wait just wait till the central committee gets their head around the size of the dark pools and off-sheet lending that's been going on in banks big and small throughout the country. Members' Plan B's are going to have to become bigger, more complex, and downgrade exit locations like London to Moscow where the politics is...ahem...friendlier to political leadership with giant exchange currency debt albatrosses hung around their necks.

Maybe the Chinese banks know something we don't. Maybe they know that China is about to mount a surprise attack on the US, rendering US Dollars worthless.

Why not the expectation that Trump will tip the balance by Fed appointments, plus political pressure, plus fiscal policy over to Venezuelan hyper inflation?

Nah, with Trump the US monetary policy has been holding well, let's see if it will be able to hold off Bernie Sanders.

Thinking about this a bit more seriously, it is quite obvious given that China and soon enough, India, are/will be larger trading economies than the US, then it does not make sense for the dollar to continue to be the world's reserve currency.

Except that China and India do not have central banks whose independence can be relied upon in the mid and long term

Or volume of currency in circulation or things to buy with it. If the Euro can't serve as an alternate global currency, these two certainly won't.

Separately, is their any argument the dedolarification could in fact be the cause of this?

"The combined dollar liabilities at the big four commercial banks exceeded their dollar assets at the end of 2018, their annual results show—a sharp reversal from just a few years ago. Back in 2013, the four together had around $125 billion more dollar assets than liabilities"... ok... maybe this is bad... I don't know... but before commenting, I would want to know how much this is as a percentage of total assets. Do they also have a lot of euro-denominated or yen-denominated or other stable currency denominated assets that can be converted to dollars? What is the maturation on those dollar liabilities vs. assets? What's the rate of interest accruing to the assets vs. that having to be paid on the liabilities?

"The imbalance at Bank of China is small relative to its balance sheet, so it shouldn’t be seen as an imminent threat."

"The government’s $3.1 trillion in foreign exchange reserves are probably also a backstop in a crunch..."

Push comes to shove, the Peoples Bank of China could liquidate some of its treasury holdings and just deposit dollars into Chinese commercial banks.

Much ado about nothing, as gab says. My notes indicate for the USA, FDIC bank liabilities from 2008 until about 2011 exceeded assets for US banks as a whole. In other words, there was no bank equity, and technically, as a whole, US banks were insolvent for a few years after the panic of 2008. A consequence of fiat money creation and today's 'socialized' credit, worldwide.

Somebody is impersonating Ray again.

Anyone can go on line to FDIC Quarterly Banking Profile Reports which aggregate and summarize US, FDIC-insured banks' quarterly consolidated statement of income and condition. It was not so for the banks.

The problem was the FDIC insurance fund which was insolvent due to massive insurance losses. The solution: FDIC banks remitted three years worth of bank insurance assessments, which provided liquidity to fund failed bank resolution requirements. Today, the fund is solvent, with a balance well over $100 billion.

See November 2018 FDIC press release.

"On September 30, 2018, the Deposit Insurance Fund Reserve Ratio reached 1.36 percent, exceeding the statutorily required minimum reserve ratio of 1.35 percent ahead of the September 30, 2020, deadline required under the Dodd-Frank Wall Street Reform and Consumer Protection Act. FDIC regulations provide for two changes to deposit insurance assessments upon reaching the minimum: (1) surcharges on insured depository institutions with total consolidated assets of $10 billion or more (large banks) will cease; and (2) small banks will receive assessment credits for the portion of their assessments that contributed to the growth in the reserve ratio from between 1.15 percent and 1.35 percent, to be applied when the reserve ratio is at or above 1.38 percent."

They can just do like North Korea and print some dollars themselves.

On South High Street, their house was cross-legged—it puffed from a broad roof slackened by paneled triangles. Between pointy shrubs on either side, I rang the doorbell. It buzzed, carpeted, swiveling, too much a placemat—I stopped and knocked, giving it a good go, my knuckle sidewise, the sound against the brown door was preemptory at first, then again, and again, agaynst. I pressed, anyways, the doorknob and received the same; Tom jangled it away, Tom and the door, back and aside, welcoming. Our hands chagrin, enveloped, horn-rimmed, unhinged. Both of us wry, aloof, placid and behind him Sara lit a set of candles on a wooden table, at every strike her blonde-coral hair in lunette.

Here is my China fact of the day.

Most Chinese people in China wake up every morning in China happy to be waking up as a Chinese person in China.

Spinoza liked to start with the basics, those are the basics.

No matter how much you want to try to "understand the world", the world is still going to be the world. There is nothing you can do about it. There is not going to be some point where you have collected enough negative facts about Chinese people, or Russians, or white Americans, or diverse Americans, or Mexicans, where those people are going to say, hey, you are right, I should not wake up happy tomorrow to be who I am, to be a Chinese person, or a Russian person, or a white American person, or a diverse American person, or a Mexican.
Stop thinking that you can be divisive!
The sooner you understand that the sooner you will understand what the real issues are.

Cruelty to animals in every nation.
Stupidity in the academia of all the proud countries and all the humble countries.
Voluntary Obesity and Voluntary Lack of minimal self-respect in clothing choices, in every country, even in France and Lebanon, where they used to know better.
Abortion, particularly the worst kind of abortion, the calculated kind.
The lack of people who should understand (it is so easy!) basic calculus and basic probability and the lack of people who remember what happened in ancient times when the IYIs of the day turned the fertile coasts of the Southern Mediterranean into relative wastelands.

(I was not gonna comment tonight but I lived on High Street for 3 years.
nothing horn-rimmed, and chagrin is not and adverb, but otherwise....)

for the record if you wipe out cruelty to animals you will be most of the way to a better world

and that is worth working for.

maybe you think that is a stupid thing to say but you don't know what I know about how little most people think of what it means to be a real person.
It is so much easier, not effectively knowing what a real person is, to think of convincing people to be nice to animals than it is to think of convincing them to be nice to each other.

The PBoC can always print yuan and buy US dollars. Yes, the yuan would depreciate a little, but that is not regarded as a negative in Beijing.

BTW, the PBoC already buys a lot of gold, which is a back-door way of depreciating the yuan. If they needed dollars, they could sell gold also.

The Sino financial system is not like the West's, and in fact may be a lot sturdier.

This is from Brookings, and it is worth a chuckle. Brookings is regarded as a serious outfit.

OP-ED
China’s Worsening Debts
Nicholas R. Lardy
Friday, June 22, 2001

A veil has just been lifted that for years hid the true financial health of China’s four biggest state-owned banks. The veil may not have been lifted very high, but an alarming picture is already taking shape."

---30---

Yes, Western orthodox macroeconomists have been doomsayers for 20 years on the Sino financial system. Meanwhile, the China growth story unfolded. And the US financial system collapsed.

President Xi and the Communist Party of China are tightening their grip on every aspect of Sino life. But the Sino financial system is very rugged.

In the US? That is a different story.

I wonder how much that might be driving the non$ settlement plans China and Russia are considering (I suspect the same problem may be plaguing Russian banks but that's a guess).

One might also ask is that a buy signal for US$ or perhaps just part of the crisis for fracturing the current global standard of US$.

A bit overwrought. China's not really "running out of dollars." Capital controls are tighter than ever, and their US trade surplus can easily fund the gaps. They are nowhere near a crisis in dollar funding.

What's interesting is that they seem to be giving up on internationalizing yuan, because they know they cannot open their capital account without the yuan collapsing, which could further tarnish the regime's already shaky claims to legitimacy. So they end up sending a lot of dollars from their US trade surplus out for risky ventures into geopolitics like BRI loans (some of which don't get paid back) and Venezuelan oil futures (ditto), also giving themselves some (risky) hedges against a falling yuan.

Of course, the BRI debtors will need to acquire lots of dollars to pay back those loans...

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