Post-Baoshang Takeover, China Aims To Reassure Investors

China’s Central Bank said over the weekend that there won’t be any more takeover of banks after the government’s intervention with Baoshang Bank, an Inner Mongolia-based bank.

According to a report in Reuters citing China’s Central Bank, the government said that was a standalone incident and not indicative of a policy. “Everyone, please don’t worry. At present we don’t yet have this plan,” it said in a statement on its website, reported Reuters. Late last month the China Banking and Insurance Regulatory Commission took control of Baoshang Bank. That sent the markets in China into a tailspin, prompting People’s Bank of China to inject cash. That lead to speculation that more takeovers were coming.

The Central Bank in China said deposit insurance funds and Baoshang Bank’s own fund is enough to guarantee all the creditors following the government takeover. The government said the takeover was due to improper and illegal use of bank funds by Tomorrow Holdings, reported Reuters. Tomorrow Holdings owns 89 percent of Baoshang’s stock. That resulted in a credit crisis at the bank. The People’s Bank of China said it would guarantee all personal accounts and inter-bank debts of less than 50 million yuan.

The People’s Bank of China did say it plans to use different tools to stabilize money markets and increase liquidity. “The PBOC has fully estimated and prepared for the various factors that will affect liquidity in June, and will flexibly use reverse repurchase agreements and the medium-term lending facility in accordance with the cash supply-and-demand situation of the market,” it said in a statement, reported Reuters. The People’s Bank of China pointed to the low reserve requirements it has for medium and small banks as one way that liquidity will be boosted. Reuters noted it announced another reduced reserve requirement that is expected to increase long term liquidity for the small and medium-sized banks.