nervousness

Beijing Tries to Placate a Skittish Stock Market

HONG KONG — The Chinese central bank reassured investors worried about a lingering credit crunch and declared that it has already been selectively supporting bank liquidity, as Chinese stock markets swung wildly again Tuesday after several days of volatility.

The People’s Bank of China, the central bank, eager to rein in soaring lending growth and financial risk, uncharacteristically refrained from intervening as bank-to-bank interest rates shot higher last week. But that decision generated intense nervousness as investors fretted that some lenders could buckle under higher interest rates and that tighter lending conditions could chill an already cooling economy.

The uncertainty produced wide trading swings Tuesday, with the main Chinese stock indexes dropping to their lowest levels since early 2009 before recovering most of the day’s losses near the end of trading. The Shanghai composite index, which had tumbled 5.3 percent Monday, slumped more than 5 percent again by early afternoon, only to recover almost all of those losses later on, closing down 0.2 percent. The index’s total decline since a peak early in February has been nearly 20 percent.

The Shenzhen composite index likewise reversed earlier sharp losses Tuesday. It also finished 0.2 percent lower, but it has sagged more than 15 percent since a high hit in late May. In Hong Kong, the Hang Seng Index seesawed and ultimately eked out a gain of 0.2 percent. An index measuring volatility in the Hong Kong market has risen steeply in recent weeks to its highest level in more than a year.

In Europe, markets had gained more than 1 percent by midafternoon, and Wall Street indexes were up strongly in early trading.

After China’s stock markets closed, the People’s Bank of China issued a statement apparently intended to soothe investors’ nerves and to keep up pressure on banks deemed to be carrying too much financial risk.

“In recent days, the central bank has provided liquidity support to some financial institutions that meet the demands of macro prudence,” the central bank said in a statement on its Web site. “Some banks with ample liquidity have also begun to play a stabilizing role in circulating capital into markets.”

The central bank largely appeared to have sat on the sidelines in recent weeks, but pledged Tuesday that, going forward, it would apply open market operations — buying or selling securities to manage liquidity and rates — and other methods to offset “short-term abnormal volatility, stabilize market expectations and maintain stability in monetary markets.”

The reassurances were accompanied by a warning to commercial banks to contain risk and to report promptly any “sudden major problems.” Chinese banks that follow government policies in lending practices and risk controls can expect support from the central bank if they suffer short-term capital shortfalls, the bank said. But wayward banks can expect tougher treatment, it suggested.

“For institutions that have problems in their liquidity management, corresponding measures will be taken on a case-by-case basis, while maintaining the overall stability of money markets,” it said.

“The stock markets are continuing to react to the very elevated funding costs,” said Dariusz Kowalczyk, a senior economist and strategist at Crédit Agricole in Hong Kong, referring to the recent surge in interbank lending rates. Those rates determine how costly it is for banks to borrow money from one another, often to cover short-term obligations.

The interbank rates reached a record high last Thursday, setting off concerns about the health of China’s financial system and underlining the Chinese authorities’ determination to steer lenders toward more prudent loans, even if that came at the cost of slower overall economic growth.

Interbank lending rates, which began retreating Friday, continued to do so Tuesday. The benchmark overnight lending rate, a gauge of liquidity in the financial market, stood at 5.736 percent. That was down from 6.489 percent Monday and well below the record high of 13.44 percent reached Thursday.

But with rates still well above where they had been over the past 18 months, around 3 percent, jitters over the effect on the financial system and the economy persisted Tuesday.

David Jolly contributed reporting from Paris.

Article source: http://www.nytimes.com/2013/06/26/business/global/china-stocks-tumble-for-second-straight-day.html?partner=rss&emc=rss

News Analysis: In Euro Zone, Banking Fear Feeds on Itself

As Europe struggles to contain its government debt crisis, the greatest fear is that one of the Continent’s major banks may fail, setting off a financial panic like the one sparked by Lehman’s bankruptcy in September 2008.

European policy makers, determined to avoid such a catastrophe, are prepared to use hundreds of billions of euros of bailout money to prevent any major bank from failing.

But questions continue to mount about the ability of Europe’s banks to ride out the crisis, as some are having a harder time securing loans needed for daily operations.

American financial institutions, seeking to inoculate themselves from the growing risks, are increasingly wary of making new short-term loans in some cases and are pulling back from doing business with their European counterparts — moves that could exacerbate the funding problems of European banks.

Similar withdrawals, on a much larger scale, forced Lehman into bankruptcy, as banks, hedge funds and others took steps to shield their own interests even though it helped set in motion the broader market crisis.

Turmoil in Europe could quickly spread across the Atlantic because of the intertwined nature of the global financial system. In ad-dition, it could further damage the already struggling economies elsewhere.

“This crisis has the potential to be a lot worse than Lehman Brothers,” said George Soros, the hedge fund investor, citing the lack of an authoritative pan-European body to handle a banking crisis of this severity. “That is why the problem is so serious. You need a crisis to create the political will for Europe to create such an authority, but there is still no understanding as to what the authority will do.”

The growing nervousness was reflected in financial markets Tuesday, with stocks in the United States and Europe falling 1 percent and European bank stocks falling 5 percent or more after steep drops in recent weeks.

European bank shares are now at their lowest point since March 2009, when the global banking system was still shaky following Lehman’s collapse.

Investors also continued to seek the safety of United States Treasury bonds, as yields on two-year bonds briefly touched 1.90 percent, the lowest ever, before closing at 1.98 percent.

Adding to the anxiety, several immediate challenges face European officials as they try to calm markets worried about the debt crisis spreading.

In the coming weeks, the 17 countries of the euro currency zone each could agree to a July deal brokered to bail out Greece again and possibly the region’s ailing banks. Along with getting unanimity, more immediate obstacles could trip up the agreement.

On Wednesday, Germany’s top court is to rule on whether it is legal for that country’s leaders to make such an agreement. On Thursday, officials in Finland are to express their conditions for approving the deal, and other countries may follow with their own demands to ensure their loans will be paid back.

Though they have not succeeded in calming the markets, European leaders have taken a series of steps to avert a Lehman-like failure. New credit lines have been opened by the European Central Bank for institutions that need funds, while the proposed Greek bailout would provide loans to countries that need to recapitalize their banks. In addition, the central bank has been buying up bonds from Italy and Spain, among other countries, to keep interest rates from spiking. Many of these have been bought from European banks, effectively allowing them to shed troubled assets for cash.

While the problems in smaller countries like Greece and Ireland are not new, in recent weeks the concerns have spread to banking giants in countries like Germany and France that are crucial to the functioning of the global financial system and are closely linked with their American counterparts. What is more, worries have surfaced about the outlook for Italy, whose debt dwarfs that of other smaller troubled borrowers like Greece.

Article source: http://www.nytimes.com/2011/09/07/business/global/in-euro-zone-banking-fear-feeds-on-itself.html?partner=rss&emc=rss

Beijing Tries to Placate a Skittish Stock Market

News Analysis: In Euro Zone, Banking Fear Feeds on Itself

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