2016-10-23bloomberg.com

What's indisputable is that debt, the tinder of almost every financial conflagration, is growing rapidly. At 225 percent of world gross domestic product, combined public and private debt outside the financial sector "is currently at an all-time high," the IMF says. Debt fuels growth but also makes borrowers brittle. Debtors keep owing money even if they lose the ability to repay. If they default, their lenders are damaged and sometimes default on their own obligations, and so the dominoes fall.

...

Two regulations that take effect in 2018 will begin to pinch in 2017 as banks prepare to comply with them. One, from the Basel Committee on Banking Supervision, strictly limits the amount of leverage that banks can use to make money. Another requires them to recognize expected loan losses more quickly. Although the rules should make banks safer, they could also further reduce their profits. If banks keep trying to thread the needle--scraping by without turning to shareholders for more capital--they could become even more vulnerable.

...

Chinese banks are "the major risk, a potential detonator," says Samuel Malone, director of specialized modeling at Moody's Analytics. He looked at the size, fragility, and interconnectedness of the world's biggest banks and concluded that China's Southeast Asian neighbors, particularly Singapore, are most directly exposed. China's shadow banking system is huge and poorly understood, and the losses that it suffers could quickly be transmitted to conventional banks.



Comments: Be the first to add a comment

add a comment | go to forum thread