Chinese regulators are set to place new limits on interbank loans after banks exploited a loophole to ratchet up leverage in the financial system, according to draft rules.
The rules, which are not yet public but have been circulated widely among Chinese banks and been reviewed by the Financial Times, would mark the latest move by regulators to crack down on the burgeoning business of off-balance sheet lending.
However, as with previous such attempts, analysts say there appears to be enough leeway in the new regulations for banks to continue their off-balance sheet business in slightly different guises. The result is expected to be a slowdown, not a halt, in the rapid build-up of credit seen in the Chinese financial system in recent years.