Authorities in at least five cities have begun accepting local-government bonds as collateral for cash deposits at commercial banks without explicit consent from national policy makers, in the hopes the new benefit can boost demand for a swap program meant to transfer massive off-balance-sheet bank loans into lower-cost bonds, Bloomberg reported, citing unnamed sources. Only central government bonds qualify under established policy, but recent efforts by the People’s Bank of China to boost liquidity have yet to foster demand for the new local-government bonds at interest rates authorities will consent to pay.
China Economic Review