China Facts: Shadow banking - WMPs'



China facts, the People's Bank of China circulated in February 2017 a draft policy framework that forbids off balance sheet Wealth Management Products (WMPs) from investing in illiquid loans known as "non-standard" credit assets. Banning investment in non-standard assets would reduce non-bank lenders' willingness to lend, since the loans could not longer be easily packaged and sold. The rules also forbid WMPs from taking other WMPs as their underlying assets, a practice reminiscent of "synthetic" collateralised debt obligations popular in the US before the 2008 financial crisis. Synthetic products create risk of contagion, since the default on one product can create a chain reaction from linked products*).            


*) Gabriel Wildau, Shanghai Feb. 22nd, 2017












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Hans Henrik Pontoppidan
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