Because i have a habit to post one liners (conclusion) without the analysis .... Try this:
This bailout that looks like that bailout
In August 1998, the Chinese government issued bonds to recapitliase the big four banks.
The PBC first lowered the statutory reserve requirement ratio for the banking sector as a
whole from 13 per cent to 9 per cent, the MoF then issued RMB 270 billion (USD 33
billion)7 in special government bonds. The big four state-owned banks used the liquidity
freed up by the lowering of the reserve ratio to purchase the bonds. The government then
injected all the bond proceeds as equity into the big four banks (Mo, 1999), with the
consequence that the capital base of the big four banks more than doubled. As the initial
sole owner of the big four banks, the MoF thus met the capital call from these banks and
explicitly burdened future taxpayers to fund a capital injection.
Ma, Guonan. Who Pays China's Bank Restructuring Bill. pg 14, CEPII Working Paper. February, 2006. Available at: http://www.cepii.net/anglaisgraph/workpap/pdf/2006/wp06-04.pdf
Repeat: 'PBC owns this bailout'. Everybody should be fairly familiar with bailouts by central banks... but, add your thoughts.
