China Allays Banking System Liquidity Fears

By Marc Castro

Jun 29, 2013 11:23 AM EDT

The chief banking regulator of China said on Saturday that the liquidity of the banking system of the country is 'sufficient'. He further pledged to manage the risks arising from, local government debt, shadow banking and real estate issues.

Even with the current cash squeeze the had resulted in interest rates in the money market soar in the past few weeks, banks in China have more than sufficient reserves to meet all its settlement needs. This was confirmed by Shang Fulin, the chairman of the Chinese Banking Regulatory Commission during a financial forum last Saturday.

Shang said during a speech at the Lujiazul Forum held in Shanghai, "Over the last few days, due to multiple factors, the problem of tight liquidity has appeared in the market. But overall, liquidity in our banking system really isn't scarce."

Shang explained that the total excess reserves of the Chinese banking system was at RMB1.5 trillion, which he acknowledged as more than double the amount necessary for normal payment and settlement requirements of the whole system.

As for the risks involved with bank exposure to local government debt and the real estate market, Shang said these were manageable, He added, "Currently everyone is fully aware of the risks. As long as we take proper risk control measures, these risks are controllable."

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