About That Banking Crisis Risk

Bloomberg: China, Brazil Among Emerging Markets at Risk of Banking Crisis
A ratio of credit to gross domestic product, a measure of how much private-sector credit has deviated from its long-term trend, stands at 25.4 percent in China, BIS said in a report on Sunday. That’s the highest of any major economy and compares with 16.6 percent in Turkey and 15.7 percent in Brazil.

“Early warning indicators of banking stress pointed to risks arising from strong credit growth,” according to the bank. Historically, a country with a ratio above a 10 percent threshold has a two-thirds chance of “serious banking strains” occurring within three years, BIS said.
Brazil and Turkey are both watching their currencies circle the drain and in terms of exceeding the 10% threshold, they've only exceeded it by about 50%, whereas China has exceeded it by 150%.

Here's a look at how the two currencies are doing:

The common wisdom on China is way too sanguine. Things will have gone very well if the yuan only falls to 8 to $1 by the time this is all over.

No comments:

Post a Comment