December 4, 2020

Markets Falter After Chinese Central Bank Statement

HONG KONG — In its first direct comment about a credit crunch last week that raised concerns about the health of the Chinese financial system, China’s central bank insisted Monday that there was ample cash in the banking system but stressed that the country’s commercial banks needed to be better managed.

Bank-to-bank lending rates, which had hit record highs last week, further eased Monday. But stocks slumped sharply in a sign that markets remained intensely nervous about China’s growth prospects and the uncertainties that surround the Chinese leadership’s efforts to reshape the economy.

The Shanghai composite index, which has been under pressure for months amid mounting evidence that the Chinese economy is cooling, plunged 5.3 percent, its biggest single-day drop in nearly four years, taking its decline so far this year to more than 13 percent. The Shenzhen composite index dropped 6.1 percent, while in Hong Kong, the Hang Seng Index fell 2.2 percent, sagging below the 20,000-point mark for the first time since last September.

Markets in Europe were down almost 2 percent in afternoon trading, while Wall Street shares were down 1 percent shortly after the opening.

Numerous analysts have revised downward their growth projections — HSBC, for example, cut its forecast for this year to 7.4 percent from 8.2 percent — amid signs that Beijing’s new leaders are willing to tolerate slower growth in the short term as they pursue stability for the long term.

The interbank lending market’s benchmark overnight rate, which serves as a gauge of liquidity in the financial market, stood at 6.489 percent Monday. That was down from 8.492 percent Friday and well below the record high of 13.44 percent it hit Thursday, but still elevated compared with the level of about 3 percent of most of the past 18 months.

In a statement dated June 17 but published Monday, the Chinese central bank, the People’s Bank of China, addressed some of the concerns about the cash crunch, saying that “currently, liquidity in our country’s banking system is overall at a reasonable level.” But, in a stern sign to Chinese lenders, it called on financial institutions to improve “awareness about preventing risks” and to “strengthen their analysis and forecasting about factors affecting liquidity.”

“Follow the requirements of macro prudence in allocating assets in a sensible fashion,” the central bank’s instructions to lenders went on, “and cautiously control the risks that the excessively rapid expansion of credit and other assets may lead to liquidity risks. When there is turbulence in market liquidity, swiftly adjust the structure of assets.”

The fact that the People’s Bank of China had allowed interbank lending rates to soar last week — rather than injected money into the financial system — was widely interpreted as a deliberate effort to rein in excessive lending and force banks to focus on prudent, low-risk loans.

A buildup of debt by local governments, property developers and state-owned companies, while useful for supporting economic growth, bears substantial risk, including asset price bubbles and potentially destabilizing defaults if loans turn sour, analysts have cautioned. The rapid expansion of lending in unregulated and often opaque shadow banking activities, in particular, has worried many.

Last month, the International Monetary Fund cautioned that the growth in credit “raises concerns about the quality of investment and its impact on repayment capacity, especially since a fast-growing share of credit is flowing through less-well supervised parts of the financial system.”

Beijing has responded in recent months with efforts to address the potential risks. “Policy makers have taken measures to slow the rapid growth in credit and at the same time tightened rules about irregular and imprudent activity in the financial system, including interbank bond repo transactions,” economists at JPMorgan in Hong Kong wrote in a research note Friday, referring to bond repurchases. That “tough-line attitude,” they added, had caused the recent increase in interbank funding costs.

Although factors like a seasonal demand for liquidity and a crackdown on cash hoarding at banks also contributed to the rate increase, the JPMorgan team wrote, it seemed that the P.B.O.C. also “wants to use this as an opportunity to address” banks’ expectations that it is always there to provide backup.

Yiping Huang and Jian Chang, China economists at Barclays, said in a report that with “China’s credit-to-G.D.P. ratio at 200 percent, we believe that the P.B.O.C. is acting in line with the government’s efforts to deleverage, rebalance and position the economy towards a path for sustainable growth.” Though the central bank is likely to stabilize the interbank market in the near term, they added, “short-term rates are likely to remain elevated, at least for a while, possibly leading to the failing of some smaller financial institutions.”

Louis Kuijs, an economist at Royal Bank of Scotland and former China economist at the World Bank, said conditions in the interbank market were likely to remain “tight and nervous” in the coming weeks.

“We expect conditions on the interbank market to normalize gradually after that,” Mr. Kuijs added.

Chris Buckley contributed reporting.

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Cyprus Makes Plan to Seize Portion of High-Level Deposits

A one-time levy of 20 percent would be placed on uninsured deposits at one of the nation’s biggest banks, the Bank of Cyprus, to help raise 5.8 billion euros demanded by the lenders to secure a 10 billion euro, or $12.9 billion, lifeline. A separate tax of 4 percent would be assessed on uninsured deposits at all other banks, including the 26 foreign banks that operate in Cyprus.

An agreement was still far off, though, as Cyprus’s lenders left for the night without reaching an accord. The proposal still requires approval by the Cypriot Parliament and by the European Central Bank, International Monetary Fund and European Union leaders. Finance ministers from the 17 euro zone countries have scheduled an emergency meeting at 6 p.m. Sunday in Brussels.

Under the plan, savings under 100,000 euros would not be touched — a rollback after a controversial plan last week to tax insured deposits was rejected by Cyprus’s Parliament, amid outrage among ordinary savers and widespread concern that a precedent had been set for governments anywhere to tap insured bank savings in times of a national emergency.

Cypriot officials on Saturday also pulled back on a plan to raise billions of additional euros by nationalizing state-owned pension funds, after Germany, whose political and financial clout dominates euro zone policy, had indicated it opposes the move.

Cyprus’s president, Nicos Anastasiades, was meeting Saturday night with political parties to explain the plan. He was scheduled to fly to Brussels on Sunday.

Cyprus’s finance minister, Michalis Sarris, said on Saturday that there had been “significant progress toward reaching an agreement” with European officials on raising money for a bailout.

All parties were working against a deadline imposed by the European Central Bank, which has said it will cut off crucial short-term financing to Cyprus’s teetering commercial banks on Monday if a bailout deal is not reached by then.

Facing what he has called the worst crisis for Cyprus since the 1974 Turkish invasion, Mr. Anastasiades said on Saturday on his Twitter account: “We are undertaking great efforts. I hope we will have a resolution soon.”

A noisy crowd, estimated at around 2,000 people, gathered outside the presidential palace in the early evening, far more than the hundreds who had gathered there in recent days. With flanks of riot police standing guard, many demonstrators chanted, “Resign! Resign!” as they inveighed against the imminent consolidation of the Laiki Bank, one of Cyprus’s biggest and most troubled lenders. In a move demanded by the I.M.F., which will cost thousands of jobs, the toxic assets of Laiki will be hived off into a so-called bad bank, while healthy assets and accounts will be moved to the Bank of Cyprus. There, accounts over 100,000 euros would be subject to the 20 percent tax.

A cutoff of central bank financing and the absence of a bailout agreement could cause Cypriot banks to collapse. It could also lead to a disorderly default on the government’s debt, with unpredictable repercussions for the euro monetary union, despite the country’s tiny economy.

Asked on Saturday whether Cyprus had a backup plan if a deal is not reached, a government spokesman, Christos Stylianides, said, “We are doomed” if a solution is not found.

Olli Rehn, the European Union commissioner for economic and monetary affairs, said in a statement on Saturday evening that it was “essential that an agreement is reached by the Eurogroup on Sunday evening in Brussels.”

But Mr. Rehn also suggested that opportunities had been squandered to find a less painful way out of the crisis. In a thinly veiled reference to the Cypriot Parliament’s rejection of an earlier deal, Mr. Rehn that “the events of recent days have led to a situation where there are no longer any optimal solutions available” and that, “Today, there are only hard choices left.”

European Union leaders “may conclude that it is best to let Cyprus default, impose capital controls and leave the euro zone,” Nicolas Véron, a senior fellow at Bruegel in Brussels and a visiting fellow at the Peterson Institute for International Economics, said in a recent assessment. “But such a move would violate the promise of European leaders to ensure the integrity of the euro zone no matter what and potentially set off a chain reaction, including possible bank runs in other euro zone member states, starting with the most fragile ones, such as Slovenia and, of course, Greece.”

Parliament was still deciding when to vote on the new proposal to tax uninsured bank deposits.

The finance ministers and the troika on Saturday were still calculating how much money those deposit-tax alternatives would raise for the government.

“The good news is that banks were shut last week, and so depositors couldn’t cut up their money into smaller accounts to avoid any tax,” said one European Union official, who spoke on the condition of anonymity. “But it’s sure that depositors did do this before, so this needs to be assessed.”

At the insistence of the central bank, lawmakers also voted on Friday to impose capital controls to limit withdrawals and bank account closings once Cyprus’s banks reopen. The current plan is to reopen them on Tuesday morning, after a nine-day emergency holiday meant to prevent a classic run on the banks.

But without a bailout, the banks would probably be unable to open.

Liz Alderman reported from Nicosia, Cyprus, and James Kanter from Brussels. Andreas Riris contributed reporting from Nicosia.

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Europe Gets Some Reassurance in Auctions of Debt

And while the central bank left its benchmark interest rate unchanged at 1 percent Thursday, the bank’s president, Mario Draghi, indicated he was prepared to take further steps to ease credit, if necessary.

The Italian Treasury found brisk demand Thursday in selling 8.5 billion euros ($10.9 billion) of 12-month bills at an interest rate of 2.735 percent. It was the lowest interest rate Italy has been able to sell one-year debt at since an auction in June — and less than half the 5.952 percent Italy had to offer at the last sale, in early December.

In Madrid, the Spanish Treasury said Thursday it sold a total of 10 billion euros ($12.8 billion) of bonds — twice the amount it had set as a target — with yields down from previous auctions. For example, $4.3 billion in three-year notes were sold at a yield of 3.384 percent, compared with 5.187 percent in December for three-year notes.

Both Spain and Italy have been under intense pressure from investors because of their public finances, with recently installed governments scrambling to push through additional austerity packages to rein in deficits and debt levels.

Both countries’ longer-term debt yields, which reflect higher risk and uncertainty, remain relatively high. Another bellwether of the crisis comes Friday, when Italy tries to auction more than $9 billion in longer-term debt. The question remains whether enough investors will bid on that debt and feel confident enough in Italy’s fiscal health to justify declining yields.

The interest rate on Italy’s 10-year debt has dipped to 6.6 percent from 7.1 percent earlier this week, though it is still unsustainably higher than the 4 percent to 5 percent it traded at for much of the last two years.

But Thursday’s solid auctions were the latest sign that shorter-term government debt has become more attractive to commercial banks and other investors since the central bank last month began a program of offering low-interest three-year loans to commercial banks in the euro currency region.

While a large portion of that money has been used simply to pay off other lenders, it has clearly eased pressures on the banks and helped free up cheap money the banks can use to purchase sovereign debt.

“We do think this decision has prevented a credit contraction that would have been much more serious,” Mr. Draghi said Thursday.

He said the central bank would continue to support commercial banks in the euro zone and predicted that the bank’s next refinancing operation, in February, would attract even more lenders.

The central bank, based in Frankfurt, left its benchmark interest rate unchanged Thursday, after having cut rates by a quarter point twice since Mr. Draghi became its president at the beginning of November. The rate cuts have been meant to help slow an economic downturn in the 17 countries in the European Union that use the euro. Mr. Draghi said the bank was pausing in its rate cutting amid what it called “tentative” signs of increased economic stability. But he indicated the central bank was prepared to take further steps, if necessary.

Analysts took Mr. Draghi’s comments as a clear sign that the central bank stands ready to reduce its benchmark interest rate below the already historic low of 1 percent to counter a recession.

“He kept the door open,” said Jacques Cailloux, the chief European economist for Royal Bank of Scotland. “He made a very clear statement that the E.C.B. stands ready to act.”

Earlier Thursday, in London, the Bank of England kept its benchmark interest rate at a record low of 0.5 percent as the British government’s tough fiscal measures and the crisis in the euro zone exacerbated economic problems.

The Bank of England also voted to continue with its existing bond purchasing program of £275 billion ($422 billion). Many economists expect the British central bank to expand the asset-buying program at its next meeting in February in a bid to pump more capital into the economy.

Some economists expect the central bank to move as early as next month for a rate cut. But others predict that the governing council will hold off until March, when a fresh growth forecast for the euro zone is to be issued.

Reporting was contributed by Julia Werdigier from London, David Jolly from Paris and Raphael Minder from Madrid.

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After Brief Calm, Europe Again Worries Over Debt

The euro currency fell to its lowest level in more than 15 months on Thursday, below $1.28. And France had to pay slightly more than in recent auctions to find buyers for its government bonds that mature in 10 years. Those were among fresh signs that the late-December market calm that fell over Europe might not last much longer.

Next week, investors will probably force the Italian and Spanish governments to pay higher borrowing costs in exchange for billions of euros in new loans that the countries must obtain to pay down a mountain of other bonds whose payments will come due shortly.

In trading Thursday, Italy’s existing 10-year bonds crept back up above the 7 percent mark — to 7.09 percent — which is considered an unsustainably high borrowing rate for the Italian government. Spain’s 10-year bonds were also higher Thursday, at 5.64 percent, compared with just over 5 percent at the end of December.

Stocks in Europe were also down broadly Thursday, led by bank shares.

“It’s indicative of the sense that things aren’t great in Europe,” said Jacob Funk Kirkegaard, an economist at the Peterson Institute for International Economics in Washington. “The panic that the euro was bound to collapse in the next six months has subsided, but that doesn’t mean that Europe is in any way out of the line of fire.”

After nearly three years of halting political response to Europe’s crisis, financial markets appear to be paying far closer attention these days to the vigorous efforts by the European Central Bank to prevent the debt problems of most euro zone governments from damaging Europe’s weakened banking system. A new program of low-interest loans to commercial banks that the central bank started in December had contributed to that sense of year-end calm.

But the calm has already been shattered. Trading in shares of Italy’s biggest bank, UniCredit, was suspended Thursday in Milan after the stock lost nearly one-quarter of its value. The stock plunged on concerns that UniCredit might have trouble raising the billions of euros in new capital that regulators are demanding to insulate the bank from any worsening of the European crisis.

Spanish bank stocks were also sharply lower after Luis de Guindos, the new Spanish finance minister, was quoted in a Financial Times interview Thursday saying that Spain’s banks might need to set aside an additional 50 billion euros ($64 billion) to clean up their balance sheets.

And with much of Europe seen as heading into regional recession this year, it is not clear whether the European Central Bank can continue to put out all the fires that keep breaking out across the Continent.

What is more, a new crisis is emerging outside the euro zone, where the European Central Bank does not operate.

Hungary, a member of the European Union but not one of the 17 countries in the euro currency union, was teetering on the brink of collapse Wednesday amid fears that its center-right government was alienating the International Monetary Fund and the European Commission in Brussels at a time when Budapest was hoping for their help.

Beset by deteriorating finances and a confrontation between the government and the Hungarian central bank, Budapest’s credit rating was recently cut to junk by two ratings companies. The prime minister, Viktor Orban, recently risked having a monetary fund rescue line cut off when he introduced laws to strip the Hungarian central bank of its political independence.

The developments have unnerved investors, who shied away from buying some of the bonds the Hungarian government offered in a sale Thursday, and forced the nation to pay a higher interest rate to compensate for the risk. Hungary sold only 35 billion forints ($140 million) of the 45 billion forints in one-year Treasury bills it offered Thursday, with the average yield rising sharply to 9.96 percent.

But the main focus of attention remains the immediate problems of the euro zone — especially the ability of Italy, Spain and even France to continue shouldering their rising borrowing costs. When the European Central Bank last month began providing commercial banks with cheap loans for up to three years, one expected the consequence of that action to be that some of the money made available would end up being used to buy government bonds.

That bond buying is expected to help reduce the governments’ borrowing costs, at least for terms shorter than three years. But investors are wary of how Europe’s big economies might fare more than three years from now — which is one reason they are forcing France, Italy, Spain and others to pay higher borrowing costs on 10-year government bonds.

David Jolly contributed reporting.

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China, in Surprising Shift, Takes Steps to Spur Bank Lending

The central bank said that commercial banks would be allowed to keep a slightly lower percentage of their deposits as reserves at the central bank. The change, which will take effect on Monday, means that commercial banks will have more money to lend, which could help to rekindle economic growth and a slumping real estate market.

Real estate developers, small businesses and other borrowers have been complaining strenuously in recent weeks of weakening sales and scarce credit. Prices have dropped as much as up to 28 percent for new apartments in some Chinese cities this autumn, real estate brokers have been laying off thousands of agents as transactions have dried up, and export orders have slumped.

The Chinese move was a particular surprise because the central bank usually announces moves on Friday evenings, to allow banks and markets plenty of time to digest the news.

The Shanghai stock market slumped 3.3 percent on Wednesday before the announcement was made, its worst one-day loss in four months, on worries that the government might not act. Central bank officials in the United States said the change was not made in coordination with the action taken by the Federal Reserve and central banks in Canada, Britain, Europe and Japan to lower the cost of borrowing dollars for foreign banks.

The central bank increased the so-called reserve requirement ratio six times this year, and raised interest rates three times. The monetary policy moves earlier this year had been aimed at curbing inflation, which persists but appears to have been replaced by weakening economic growth as the top worry for policy makers.

Monetary policy changes in China are made not by the country’s central bank but by the State Council, the country’s cabinet. Shifts in the broad direction of policy are usually made only with the approval of the Standing Committee of the Politburo of the Chinese Communist Party — the nine men who really run China.

Analysts said that the central bank’s decision to announce a change in reserve requirements instead of quietly nudging state-controlled banks to make more loans showed that an important political decision had been made.

“The public nature of this move — a move that would have gone through the State Council — is a clear signal that Beijing has decided that the balance of risks now lies with growth, rather than inflation,” wrote Stephen Green, a China economist at Standard Chartered Bank, in a research note. “This is a big move, it signals China is now in loosening mode.”

The People’s Bank of China, the country’s central bank, cut the reserve requirement ratio by half a percentage point beginning Monday, to 21 percent for large banks and to 19 percent for smaller banks.

The Chinese move was such a surprise that one of the 15 members of the central bank’s monetary policy committee, Xia Bin, had just said at a seminar in Beijing Wednesday morning that China would only “fine tune” its monetary policy and would maintain an overall stance that he characterized as “prudent.”

Those remarks set off a slump in share prices during Wednesday’s trading in Shanghai; the stock market there had been closed for several hours by the time the central bank announced its policy reversal.

The People’s Bank of China is considerably more secretive than central banks in the West and particularly wary of foreign governments because of years of international pressure to allow faster appreciation of the renminbi, China’s currency.

The Chinese central bank provided no explanation for its move on Wednesday evening. The one-sentence statement only said: “The People’s Bank of China decided to cut financial institutions’ renminbi deposit reserve ratio by 0.5 percentage points.”

Easing domestic monetary policy makes it harder for China to maintain its policy of strictly limiting the appreciation of the renminbi against the dollar. The Chinese central bank has been taking most of the money that commercial banks deposit with it as reserves and then using it to buy dollars in international markets, so as to slow the renminbi’s appreciation.

But economists have seen signs in the past month that international investors are losing their appetite for speculative investments in China’s currency and have been buying fewer renminbi. That in turn has reduced the pressure from markets for the renminbi to appreciate and has meant that the central bank no longer needs to maintain its reserve requirements at record-high levels to raise the cash for its huge currency market intervention program.

Among the most widely watched economic indicators in China are the various monthly indexes of orders, backlogs and other details, gathered through surveys of companies’ purchasing managers. HSBC’s preliminary survey for November, released last week, showed an overall index of 48 points. A reading below 50 suggests a slowing economy, and 48 was the lowest reading since March 2009, when the world economy was struggling to recover from the Lehman Brothers bankruptcy and ensuing financial shocks.

The monthly release of the government’s survey is scheduled for Thursday morning in Beijing. It is widely expected to show a dip below 50 for the first time in more than two years.

The central bank’s move on reserve requirements comes as inflation in consumer prices has started to slow, from a peak of 6.5 percent in May down to 5.5 percent in October, according to official data. But private economists say that the true rate of consumer inflation is up to twice as fast, as the official data has a series of methodological shortcomings. China’s National Bureau of Statistics has acknowledged some of these shortcomings, although not the extent of their effect on inflation measurements, and is working on solutions.

Inflation in any case remains well above the government’s target of 4 percent. HSBC predicted in a research note on Wednesday evening that the government would not start reducing regulated interest rates for loans of various maturities until the official inflation rate fell below 3 percent.

Correction: November 30, 2011

An earlier version of this article incorrectly referred to the timing of the Chinese central bank statement, which was issued Wednesday evening, not Thursday.

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DealBook: Banks Increase Holdings in Derivatives

Even as federal regulators ratchet up scrutiny of the derivatives market, Wall Street is diving deeper into the $600 trillion industry, a new government report found.

The banking industry in the second quarter raised its stake in derivatives more than 11 percent from the same period a year earlier, according to the report by the Comptroller of the Currency, the federal agency that regulates national banks. Banks now hold nearly $250 trillion of the contracts, primarily futures and swaps, which derive their value from an underlying asset like an interest rate or a bundle of mortgages.

The nation’s four biggest banks — JPMorgan Chase, Citigroup, Bank of America and Goldman Sachs — are the biggest players, holding roughly 95 percent of the industry’s total exposure to derivatives. JPMorgan, which holds the most among commercial banks, carries some $78 trillion worth of derivatives on its books, according to the report. Citi is next on the list, with $56 trillion, up from $54 trillion in the first quarter.

“Derivatives activity in the U.S. banking system continues to be dominated by a small group of large financial institutions,” the report noted. While the number of banks holding derivatives increased modestly to 1,070, 99 percent are held by only 25 banks.

The derivatives industry — which allows banks, hedge funds and corporations to both hedge risk and speculate on market fluctuations – was at the center of the financial crisis. The American International Group became a symbol of the industry’s pitfalls, having sold billions of dollars in credit default swaps as insurance on risky mortgage-backed securities. When the mortgage market crumbled during the crisis, the insurance giant lacked the capital to honor their agreements.

Credit default swaps make up 97 percent of total credit derivatives at banks, though they are a small piece of the overall derivatives pie. Commercial banks primarily use interest rate products, which comprise 82 percent of the total value of derivatives.

The Dodd-Frank financial regulatory law overhauled the industry, forcing many derivatives contracts onto regulated exchanges. Many deals must also go through clearinghouses, which act as a backstop in case one party defaults. Regulators are writing more than 50 new derivatives rules, moving the once murky market onto Washington’s radar screen.

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S.E.C. Case Stands Out Because It Stands Alone

Hundreds of employees worked closely in teams, devising mortgage-based securities — billions of dollars’ worth — that were examined by lawyers, approved by management, then sold to investors like hedge funds, commercial banks and insurance companies.

At one trading desk sat Fabrice Tourre, a midlevel 28-year-old Frenchman who was little known not just outside Goldman but even inside the firm. That changed three years later, in 2010, when he achieved the dubious distinction of becoming the only individual at Goldman and across Wall Street sued by the Securities and Exchange Commission for helping to sell a mortgage-securities investment, in one of the hundreds of mortgage deals created during the bubble years.

How Mr. Tourre alone came to be the face of mortgage-securities fraud has raised questions among former prosecutors and Congressional officials about how aggressive and thorough the government’s investigations have been into Wall Street’s role in the mortgage crisis.

Across the industry, “it’s impossible that only one person was involved with fraudulent activities in connection to the sales of these mortgage securities,” said G. Oliver Koppell, a New York attorney general in the 1990s and now a New York City councilman.

In the fall of 2009, when Mr. Tourre learned that he had become a target of investigators for helping to sell a mortgage security called Abacus, he protested that he had not acted alone.

That fall, his lawyers drafted private responses to the S.E.C., maintaining that Mr. Tourre was part of a “collaborative effort” at Goldman, according to documents obtained by The New York Times. The lawyer added that the commission’s view of his role “would have Mr. Tourre engaged in a grand deception of practically everyone” involved in the mortgage deal.

Indeed, numerous other colleagues also worked on that mortgage security. And that deal was just one of nearly two dozen similar deals totaling $10.9 billion that Goldman devised from 2004 to 2007 — which in turn were similar to more than $100 billion of such securities deals created by other Wall Street firms during that period.

While Goldman paid $550 million last year to settle accusations that it had misled investors who bought the Abacus mortgage security, no other individuals at the bank have been named. Now, however, as criticism has grown about the lack of cases brought by regulators, the scope of the inquiries appears to be widening. The United States attorney general, Eric H. Holder Jr., has said publicly that his lawyers were reviewing possible charges against other Goldman officials in the wake of a Senate investigation that produced reams of documents detailing other questionable decisions that were made in the firm’s mortgage unit.

The Senate inquiry was one of several in the past three years. These investigations by Congressional leaders and bankruptcy trustees — into the likes of Washington Mutual, Lehman Brothers and the ratings agencies — were undertaken largely to understand what had gone wrong in the crisis, rather than for law enforcement. Yet they uncovered evidence that could be a road map for federal officials as they decide whether to bring civil and criminal cases.

One person who already has come under investigation is Jonathan M. Egol. A senior trader at Goldman who worked closely with Mr. Tourre, he had a negative view on the housing market early on, and took a lead role in creating mortgage securities like Abacus that enabled Goldman and certain clients to place bets that proved profitable when the housing market collapsed.

Last year the S.E.C. examined Mr. Egol’s role in the Abacus deal in its lawsuit, according to a report by the commission’s inspector general. But Mr. Egol, now a managing director at the bank, was not named in the case, in part because he was more discreet in his e-mails than Mr. Tourre was, so there was less evidence against him, according to a person with knowledge of the S.E.C.’s case.

Though Mr. Tourre was a more junior member of the Goldman team, the S.E.C. case against him was bolstered by colorful e-mails he wrote, calling mortgage securities like those he created monstrosities and joking that he sold them to “widows and orphans.”

The S.E.C. declined to comment about its focus on Goldman and Mr. Tourre, beyond pointing to a section in its complaint that said that Mr. Tourre had been “principally responsible” for the Abacus deal in the case.

A spokesman for Goldman, Lucas van Praag, did not dispute that Mr. Tourre had worked on the Abacus deal as part of a collaborative team. But he said that the bank had disagreed with many of the conclusions about its mortgage unit contained in the recent Senate report. Mr. Egol and his lawyer did not respond to inquiries for comment.

As the government continues to investigate the activities of Goldman and other banks, it is uncertain whether other individuals will be named. Neil M. Barofsky, who as the first inspector general of the Troubled Asset Relief Program, the federal bank bailout program, investigated whether banks had properly obtained and handled the money they received, said prosecutors should look as high up as possible.

“Obviously in any investigation that results in charges against a company,” he said, “you’d like to see the highest-ranking person responsible for the conduct at the company to be held accountable.”

A Booming Market

A math whiz who got his undergraduate degree at the École Centrale in Paris, Fabrice Tourre joined Goldman in 2001 after getting a master’s degree at Stanford. As the housing market and the demand for mortgages boomed over the next few years, Goldman went from creating just $3 billion of mortgage securities called collateralized debt obligations in 2002 to at least $22 billion in 2006, according to Dealogic, a financial data firm.

Tom Torok contributed reporting.

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China’s Economy Slows Slightly, but Inflation Remains a Worry

But data released on Tuesday and Wednesday leaves unclear whether the slowing is enough to bring down inflation — particularly as long as the central bank is pumping tens of billions of renminbi into the economy each week to keep the Chinese currency from rising more quickly against the dollar.

Chinese policy makers now face a delicate balancing act. They must try to divine how much more currency appreciation the country’s highly successful export industry can withstand, before the stronger renminbi makes Chinese goods less competitive on the global market.

Printing fewer renminbi to buy dollars would be the most direct step that China could undertake to fight inflation, Western and Chinese economists say. But policy makers have feared that doing so would let the renminbi rise too quickly and cause layoffs at export factories — even though the latest data shows a surge in exports.

Instead of crimping the money supply, policy makers have resorted to domestic measures, like raising interest rates and forcing commercial banks to park more of their assets at the central bank instead of lending them. But those moves are now starting to slow the domestic economy in China.

Any curb on the domestic economy directly contradicts the government’s long-term goal of shifting from export-led growth to more self-reliant growth with a greater emphasis on domestic consumption.

Even though prices at the consumer and producer levels rose a little less quickly last month than they had in March, the slight slowdown at the consumer price level was less than many economists had expected. Consumer-price inflation edged down to 5.3 percent in April, from 5.4 percent the month before.

Retail sales and construction barreled ahead in April, but not quite as quickly as the month before.

Industrial production slowed last month, but that was partly because factories had expanded so vigorously that they surpassed the electricity supply in some areas. Another factor was that some parts were in short supply from Japan after the natural and nuclear disasters there.

Meanwhile, the purchasing managers index has inched down, although it is still forecasting continued economic growth.

Taken together, the welter of economic data released Tuesday and Wednesday suggests that the Chinese economy is “cooling, but still hot,” said Hongbin Qu, HSBC’s chief economist for greater China.

As a move against inflation, Mr. Qu predicted in a research note, the government could tighten monetary policy further for the domestic economy.

Some economists are starting to ask whether the government might have gone too far in raising interest four times since October. But interest rates on bank deposits remain far below consumer price inflation, while interest rates on corporate loans remain below inflation at the producer level.

Many Chinese business executives say that their sales are still strong, and some are still finding credit readily available.

“Orders are strong from stores within China, and we see the potential for the domestic market ever expanding,” said Stan Hu, the sales manager at the Xigo Electric Group Company, an air-conditioner manufacturer in Nantuo, in southern China’s Guangdong Province. “It is true that banks have tightened their lending to companies, but we have not been affected given our healthy financial situation.”

Others, though, are struggling for loans — particularly smaller businesses, as well as exporters of low-margin products like mass market clothing.

The worried include Colin Cheng, sales manager of Ningbo Yinzhou Gold-Sun Garments Company, which makes T-shirts, skirts and other knitted garments in Ningbo, in east-central China.

“The banks have tightened lending, especially to enterprises such as ours,” he said. “We still have a three-year loan outstanding from the banks. But once it expires, we have already been informed that it is not likely the loan will be rolled over.”

The strongest facet of the Chinese economy these days is also in many ways the least welcome: exports. China’s exports jumped 25.9 percent last month from a year earlier.

That was a contrast to overall industrial production, which rose only 13.4 percent, as companies devoted more factory capacity to filling orders from overseas, rather than focusing on goods for domestic consumption.

China’s trade surplus in April, at $11.43 billion, was nearly three times what economists had expected, as exports surged past their previous record, set in December.

Countries like India, Singapore and Brazil have been dismayed at the extraordinary success of Chinese companies in grabbing business and seizing a large share of the jobs and prosperity created by the world’s gradual recovery from the economic downturn.

A cornerstone of that export success has been the huge intervention in currency markets. The People’s Bank of China issued renminbi to buy an average of $15 billion a week worth of dollars and other currencies during the first quarter, pushing its foreign exchange reserves over $3 trillion for the first time.

The central bank has tried to limit the inflationary effects of this monetary intervention by selling notes to banks at low interest rates, which allows it temporarily to take renminbi back out of circulation.

Forcing banks to park as much as a fifth of their assets with the central bank also reduces the amount of money in the economy, while enabling the central bank to use much of that money to pay for further purchases of dollars.

But this week’s data contained a warning of a possible threat to the central bank’s delicate balancing act: bank lending grew faster than expected, as banks were quick to use cash not tied up at the central bank.

At the same time, Chinese households actually reduced their deposits at banks. That is a sign many families may have concluded that earning an interest rate below the rate of inflation is a bad idea — and that spending on already high-priced real estate, gold and other physical assets may still be a better bet. Even if such spending is likely to add to inflationary pressures.

Hilda Wang contributed reporting.

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