Liquidity and bank runs are risks for China's smaller lenders
China's smaller banks are vulnerable to liquidity risk, which could result in bank runs or bankruptcies, because of investments they have made using unstable wholesale funding streams, warn analysts, “The liquidity concern for joint stock commercial banks is certainly rising, especially when rates increase,” says Natixis' chief economist, Alicia Garcia-Hererro. Furthermore, technical defaults are not impossible if banks face issues accessing liquidity when fears of counterparty risk loom, warns DBS economist Nathan Chow. Tougher rules governing smaller banks' access to shadow banking funds also increase the risk of liquidity problems.
Liquidity risks are now a reality for China’s smaller lenders and could even lead to bank runs or bankruptcies, say analysts