Systemic banks: Big isn’t necessarily scary despite the collapse and wobbles of many large banks. Global regulators have identified 30 financial institutions that will be subject to new cross-border supervision. These include heavyweights from the US, Europe and Japan — and even a lone Canadian. Conspicuous by their absence are three of the world’s five largest banks: Industrial and Commercial Bank of China, China Construction Bank and Bank of China. Their combined market capitalisation of $600 billion is bigger than the GDP of most nations. Giving Chinese banks a miss puts another dent in the creeping notion of a G2.
The Financial Stability Board, the newish watchdog meant to prevent systemic risk, is less concerned about banks that mostly lend domestically and are fully backed by a government which has already shown a willingness to recapitalise them without much fuss. This probably makes sense for now, given the enormity of the board’s mandate.
But it doesn’t mean the likes of ICBC should be completely ignored. They may not be interconnected like Goldman Sachs or Deutsche Bank. But they’re not cut off from the system either. If Dubai’s limited losses can produce far-flung tremors, a shock to a Chinese bank — perhaps caused by the bursting of a local bubble — could spell trouble in global currency, equity or commodity markets. And domestic lenders will soon venture further abroad, on their own and by following China Inc’s expansion. Interconnection could come swiftly and silently. Global financial regulators shouldn’t lose sight of Beijing for long.
