China’s huge shadow banking sector is facing its toughest test after ICBC, the world’s biggest bank by assets, whose branches sell many of these wealth products, refused to bail out investors in a dud $500m issue.
The enormous growth of poorly regulated financing outside the formal banking sector in China and the potential for a panicked run on these shadowy products and institutions pose one of the biggest risks to the global economy this year.
Shadow banking worries extend far beyond China. Paul Tucker, a former Bank of England deputy governor, said yesterday that global regulators were struggling to keep up with the pace of change in the “shape-shifting” non-bank sector. He warned of “faltering vigour” in oversight of markets.
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