China is capable of handling shadow banking, which is still not a global systematic problem, according to Jack Lew, U.S. Treasury Secretary.
The idea of shadow banking may seem complicated and scary- and in few of the financial plans that endure, the information can get highly complicated, though at a fundamental level, it is not so bewildering or nefarious. It is something happens depending on the market needs- associating those who require funds with those who possess it when the formal banking field is not giving the funds. The shadow banking phrase is a holder for all kinds of borrowing and lending that are out of the usual, conventional banking loan. Few of these practices are performed by financial organizations that are not banks. In the case of China, financial institutions known as trusts accomplish a plenty of the work. In rest of the cases, there are more informal lending networks- those borrowing from one another.
In a press meet held in Sydney before the G-20 financial ministers conference this weekend, Lew stated, “I think we’ve seen China take steps over the last six months that show that they are concerned about this and they are not going to just let it continue growing without any kind of oversight.”
He added that it was evidently a challenge that China had to handle and he feels that it would be one of the subjects to be discussed at the G-20 since it is a global issue. He also said that he was getting reassured from the comparatively small size of the shadow banking field of China when compared to Chinese economy’s size.
Concerns about the banking system of China have increased of late after the breakdown of a high profile shadow banking item marketed by ICBC, the biggest bank in the world, motivating the analysts to anticipate a wave of possible defaults in front.
The shadow banking sector of China has been compared to the subprime sector of the United States, where a sequence of credit events during 2007 and 2008 enabled the global fiscal crisis. And on recovery from this global crisis, the Treasury Secretary of US forced major powers like Japan, China, and Europe to concentrate on the driving domestic demand.
Lew also told that there is a risk of forming systematic exposure from shadow banking products since they are less regulated and less transparent.