Divyang Shah, Senior IFR Strategist
In the article an unidentified source says that overall liquidity is sufficient and individual banks were facing problems as they had relied too heavily on the interbank market and exceeded regulatory caps on lending.
The PBOC would not help banks that had behaved irresponsibly. This was something we suggested on Friday saying there was a deeper message here with the PBOC likely looking to get control of the credit creation process by increasing the counterparty risk associated with shadow banking.
This follows regulatory action to limit off-balance-sheeting lending activity from the shadow banks.
If the PBOC were to step in then it could encourage thoughts of a lower RRR, or rate cut happening in early Q3. But for now the message from the PBOC is that they are in no mood to help banks that choose to not play by the rules it sets.
