China moves to rein in high-yield financial products

China’s introduced new rules on Wednesday to curb the proliferation of short-term high-yielding financial products, which the country’s banking regulator views as a potentially dangerous side-effect of a lending spree since the global recession, the Financial Times reported. The China Banking Regulatory Commission is telling banks to do more to manage and disclose risks in so-called “wealth management products” that are used like deposit certificates with a duration of just a few weeks. In annualized terms, these products offer interest rates as high as 8% – more than double the benchmark one-year 3.25% deposit rate. The single biggest risk, according to one analyst, was a liquidity crunch “because of the very short-term nature of the products and the resulting duration mismatch between assets and liabilities.” Chinese banks have been scrambling to attract enough funding to maintain a loan-to-deposit ratio below the 75% regulatory threshold.