Audit of China's 3 trillion shadow banking system: situation not very good

约3万亿事实贷款在银行表外运作暗藏风险 审计署排查 The audit is showing more illegal loans than expected. One method used by banks was to have another bank lend to a customer that demanded more credit. This is likely to push money supply higher if the PBOC has to step in and bail out the banks, just as we saw money supply jump in the U.S. This is a typical pattern: the banks create the credit and then the central bank fills in the holes when the credit bubbles burst.

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