Small banks in China carry outsized risk – research

Study shows systemic risk of smaller banks snowballs during stress periods

Yuan outbalancing

Small regional banks in China pose a larger-than-expected threat to financial stability in times of stress, underlining the need for regulators to monitor more than just systemically important banks, according to new research on the Chinese banking system.

A study due to be published in the Journal of Risk later this year finds that the risk contribution of smaller Chinese banks grew disproportionately during the high-stress years 2007­–8 and 2011–12, with many overtaking the larger banks.

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