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Alternative Market Briefing

China’s shadow banking poses threat to local banks

Wednesday, March 06, 2013

From Komfie Manalo, Opalesque Asia – China’s "shadow banking" poses a threat to local banks as the latter are expected to foot the bill if ever the shadow banking system blows up, warned Aberdeen Asset Management.

On the other hand, Aberdeen is bullish on Hong Kong-domiciled firms exposed to Greater China consumption, Asian Investor’s report added.

The shadow banking system is the collection of non-bank financial intermediaries that provide services similar to traditional commercial banks. It is sometimes said to include entities such as hedge funds, money market funds and structured investment vehicles (SIV), but the meaning and scope of shadow banking is disputed in the academic literature. Investment banks as well as commercial banks may conduct much of their business in the shadow banking system (SBS), but most are not generally classed as SBS institutions themselves. At least one financial regulatory expert has said that regulated banking organizations are the largest shadow banks.

Asian equities manager Kathy Xu told Asian Investor is the biggest downside risk to the domestic stock market. She worries that if the shadow banking bubble burst, banks will have to shoulder the cost of its failure.

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