More Dominoes For The Next Credit Crisis

Bloomberg: ‘Smoldering Bonfire’ Shows Where Kyle Bass May Be Right on China

The 10 city commercial banks listed in Hong Kong and the mainland boosted their financial investments by 56 percent to 2.4 trillion yuan ($365 billion) in 2015, according to their annual reports. That’s almost triple the pace of increases at the four biggest state-owned banks. By the end of last year, after a two-year spree, the bulk of Bank of Jinzhou Co.’s assets were classified as financial investments rather than loans. Bank of Jinzhou declined to comment.

‘Liquidity Problem’

“A small bank may face a liquidity problem if their investments are in default and that will trigger a domino effect,” said Patricia Cheng, a Hong Kong-based analyst at brokerage CLSA Ltd. “Any failure of a financial institution will hurt sentiment and the psychological effects just can’t be quantified.”

Leverage and complexity keep increasing over time.