Moody's: China shadow banking sector impacted by increasingly tight liquidity

The US-based ratings agency, Moody’s Investors Service, is out with a latest "Quarterly China Shadow Banking Monitor" report, highlighting the following:

Liquidity in China's financial system is increasingly tightening

Stricter regulatory measures seek to constrain the growth of leverage

Tighter systemic liquidity could crystalize the risks inherent in the more complex and opaque funding structures used by smaller banks

These banks are vulnerable to the withdrawal of wholesale funding

used to finance their investments in the trust and asset management schemes of non-bank financial intermediaries to boost profitability, as well as to circumvent capital restrictions on lending

Chinese authorities recognize the risks in the shadow banking sector

Seeking to address them through a new set of regulatory guidelines, highlighting that preventing financial risks has become one of the government's top priorities this year

However indications that regulatory measures to curb systemwide leverage show unintended consequences; specifically, in reviving 'core' shadow banking activities that had previously been constrained by regulation"