The Container Factor

December 29, 2015
/   Voices

New technology to ease application shipment could make a big difference for many financial service institutions

Foolhardy Predictions for 2016

December 28, 2015

If history is any guide, it’s foolish to make predictions about the banking industry. There are too many external...

Banking with Non-Banks

December 18, 2015
/   Voices

Walmart Pay could be another step in companies outside financial services getting in on the action

Fast Facts: Student Loans

January 22, 2013
/   Insights

The Financial Services Roundtable recently released another iteration of its Fast Facts, reliable, bullet-point research about issues facing the financial services...

What We’re Reading

May 5, 2011
/   Spotlight

Below are interesting stories the staff has been reading over the past week. What have you been reading? Let...

As rumors go, this one was not exactly a barn-burner. A customer of a small lender in Yancheng, a prefecture-level city in northeastern China, had asked to withdraw his money, which totaled a little over $30,000. He was denied. Not exactly a big deal, and by accounts it wasn’t even true.

But what happened next is definitely newsworthy. The rumor spread rapidly—from one person to dozens, then to hundreds. Social media inevitably played a part, with at least one user passing on the story via Weibo, the nation’s microblogging service. Soon enough, hordes gathered outside the bank asking if it was out of funds. Staffers from the institution and even government regulators stepped in to control the situation, reiterating that the story was completely unfounded. To show that the bank wasn’t out of money, stacks of bills were propped in the window for all to see.

It didn’t work. The crowds kept growing, and they wanted their money back.

In a triumph of capitalism, all of the bank’s branches were kept open. Armored vehicles brimming with cash were brought in to appease the depositors, some of whom, witnesses reported, were carrying bags and baskets with which to take home their savings.

Of course, the problems didn’t end there. If this bank was in trouble, how safe were others?

As the crisis entered a second day, and then a third, another institution became the victim of the same rumors. Rural Commercial Bank of Huanghai, which is close by, tried hard to combat the stories, with a brightly flashing electronic sign outside the main branch and a video message from its president. A statement issued jointly by representatives of the China Banking Regulatory Commission and the Zhejiang Sheyang Rural Commercial Bank assured depositors that the banks’ capital position was strong.

This being China, it’s hard to establish just how many customers actually took their money out. It seems likely that at least some of the panicked depositors were elderly folk with memories of the collapse of rural credit cooperatives, which wiped out many people’s savings. The concerns were perhaps justified: The cooperatives were part of the shadow banking sector, which promised unreasonably high returns to unwitting consumers, and many inevitably failed.

The consensus seems to be that it’s a different world now. But is it?

Hands with String

To be sure, China’s banking sector is tightly regulated. Bankruptcies are almost unheard of, which is why this most recent run on the bank caught everyone by surprise. But it did happen, so can it happen again, and perhaps on a much larger scale. To put it bluntly, as some have, is there a potential bomb of Lehman-like proportions ticking away?

China is now so integral to the global economy that it’s certainly a fair question. Some signs are troublingly familiar:  For the last five years—by no coincidence at all, not long after the banking crisis in the United States—the government has actively promoted a credit boom. The market responded with gusto, and the numbers are astonishing.

However, this is all in the Chinese economy, and the most unnerving element in the equation is that a significant majority of this credit is not exactly transparent or otherwise above board. In fact, it’s estimated that at least two-thirds of the financing came from financial institutions that are not banks. At least some of those vast funds supporting the infrastructure building bubbled up from the shadow sector. Could the boom be followed by a bust?

The banking crisis of 2008 was arguably halted by a cash infusion, the infamous bank bailouts. Thanks to its considerable lending over the past decade and more, the central Chinese administration appears to have the resources to conduct a similar rescue, if one is needed. For all the posturing in foreign policy, not to mention the stark philosophical difference, China and the U.S. both have nothing to gain and everything to lose by letting important institutions go under.  The run on the bank in Yancheng was no more than a ripple, and there’s no danger of a flood.

However, the Chinese banking economy still represents a queasy mix of free-market capitalism and heavy-handed socialism, with the latter having more power. This kind of structure is historically unprecedented, and it would be naïve to think that we have all the answers.



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James W. Gabberty

Gabberty is a professor of information systems at Pace University in New York City. An alumnus of the Massachusetts Institute of Technology and New York University Polytechnic Institute, he has served as an expert witness in telecommunication and information security at the federal and state levels and holds numerous certifications from SANS & ISACA.

Marisa Mann

Marisa Mann brings over 15 years of experience in consulting and financial services industries to the Solstice team, working on large scale enterprise initiatives across many technologies, including specializing in the digital space – Internet and mobile. Mann is passionate about mobile and the endless possibilities for the enterprise, delivering business value through strong brand recognition and driving to excellence in the consumer experience. Prior to Solstice, Mann worked at JP Morgan Chase, Diamond Management and Technology Consultants, Washington Mutual, Inc, and Accenture.

Brad Strothkamp

Zachary Ehrlich

25-year-old writer, and as a native San Franciscan, I am unreasonably loyal to Bank of America, if only for their superhero-like origin story, involving the 1906 earthquake and Italian fruit vendors.