Reuters: China seeks to crack down on Shadow Banking

Jan 19 (Reuters) – China’s banking regulator has issued draft rules to tighten supervision of entrusted loans, a kind of shadow banking product, in a move seen targeting excessive leverage used to speculate on stocks.

The move follows an announcement on Friday that regulators would crack down on excessive margin finance by certain brokerages, and Chinese stock markets plunged on Monday morning as regulators signalled concern about valuations in the wake of a massive stock rally in the fourth quarter.

Entrusted loans – a form of inter-company loan in which one firm serves as the ultimate lender and records the loan asset on its balance sheet while banks act as intermediaries and collect a fee – have become an alternative channel to margin lending from brokerages.

The full article is available here.

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