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The build-up to the financial crisis was marked by a rapid growth in wholesale funding, where banks borrow from one another and other financial institutions, rather than raising money through deposits from retail banking customers.
When the subprime mortgage meltdown began, banks lost faith in each other and those wholesale funding markets seized up.
While many western banks may have reduced their reliance on wholesale funding since the crisis, Chinese banks have been heading in the opposite direction.
By tapping into the fast-growing market for wealth management products, which offer savers higher yields than bank deposits, Chinese lenders have fuelled rapid loan growth.
Wholesale funding now accounts for more than a third of many Chinese banks’ total liabilities — three times as much as five years ago. Some analysts fear Chinese banks may yet generate another “Lehman moment”.
Have banks and their regulators done enough to reduce risks in the system? Share your thoughts in the comments below.
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