China to control shadow banking and private lending

The China Banking Regulatory Commission (CBRC) has said it is looking to curb the rise of shadow banking and private lending in the country.

Liu Mingkang, chairman of CBRC, said the commission was taking measures to ensure such activities do not put the financial system at risk.

There have been concerns that private loans are hurting the government's effort to control lending.

Some estimates put private loans at 4 trillion yuan ($627bn; £406bn).

Recent moves by Chinese authorities to slow credit growth in the country has given rise to shadow banking and private lending, where rich individuals and businesses lend money to individuals and other companies.

These loans come with exorbitant interest rates, ranging from 14% to as much as 70%.

Mr Liu said the commission was "strictly against shadow banks and the risks associated with private financing".

Asset bubbles

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Through unremitting efforts, the latest stress test results show that China's banking industry is in general control of real-estate risk”

End Quote Liu Mingkang CBRC

In recent years, as the global economy grappled with the financial crisis, Chinese banks lent out record sums of money to ensure the country's growth momentum was sustained.

In 2009 and 2010, banks in China issued a combined 17.5tn yuan of new loans.

However, the surge in lending was followed by a rise in property prices, raising concerns about the formation of assets bubbles in the country.

There have been fears that a fall in the real estate market may see a rise of bad debt amongst the Chinese banks and trigger a slowdown in the country's overall economic growth.

However, Mr Liu said that the ratio of non-performing real estate loans was less than 2%, and it continued to fall in many areas.

"Through unremitting efforts, the latest stress test results show that China's banking industry is in general control of real-estate risk," he said.

Government debt

The other big concern about China's financial sector has been the huge number of loans extended by the banks to local governments.

According to the CBRC, these loans totalled 10.7tn yuan in 2010, or 80% of bank lending.

In June, ratings agency Moody's warned that "economic non-performing loans could reach between 8% and 12% of total loans".

However, China's banking regulator said that the local governments were in a strong financial position and would be able to service their commitments.

"The overall stability of local revenue, through its own economic development and financial growth, and the medium and long term solvency of governments at all levels, continues to increase," Mr Liu said.

He added that revenues have increased by 21.3% last year.

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Europe's bankers resisting bigger debt losses

Following yet another failed round of talks to head off a Greek debt default, it is increasingly clear that European bankers are about to get a big haircut.

And they’re embracing the idea about as well as a squirming 3-year-old.

European political and financial leaders have set an Oct. 23 deadline to come up with yet another set of proposals to resolve a debt crisis that threatens the send the continental into a deep and painful recession. After months of failed efforts to help the Greek government make good on those debts, Europe’s politicians have now finally accepted that avoiding default simply isn’t feasible, according to Paul De Grauwe, professor of international economics at Leuven University.

“Everyone agrees today that the Greek government will not be able to pay its debt,” he said. “And we had better face that fact and start that process of restructuring - and haircuts that will allow Greece to have a lighter debt burden”

That “haircut” for bankers and other holders of Greek debt means accepting less than 100 cents on the euro. The question European leaders are wrestling with is: How big a hair cut will it take to stabilize Greece’s budget?

European leaders thought they had reached a working solution in July, when the European Union agreed to a series of endlessly-debated proposals that include, among others, a “voluntary” swap of Greek debt for newly-issued bonds that would force bankers to take a loss of 20 percent. The hope was that a voluntary plan would dodge the legal definition of an outright default.

That distinction is critical. A legal default could reverberate through the financial markets because it would trigger a wave of claims on a debt loss insurance known as credit default swaps. Uncertainty about the size of swaps holdings, and which investors and banks held them, were a central cause of the global financial Panic of 2008.

Three months later, it appears the July plan doesn’t go far enough. Now, bankers who face much bigger losses are pushing back on proposals that they cut the value of their Greek debt holdings by as much as 50 percent. Many banks are believed to have too little capital in reserve to covers those losses, prompting calls by regulators to force bankers to raise more capital.

Without stronger capital cushions to withstand Greek debt losses, European governments fear they’ll have to step in to clean up the financial mess. Earlier this month, France and Belgium took over the failed bank Dexia after it’s investment losses burned through the last of its cash.

Faced with the prospect of seeing the value of their Greek bonds cut in half, European bankers are not going quietly. On Thursday, Deutsche Bank CEO Josef Ackermann warned that the combination of stricter capital requirements and deeper losses on bond holdings would force bankers to write fewer loans.

"A question remains over whether banks will be able to provide financing, or whether possible haircuts in the euro zone and the new regulatory environment will practically force them to be restrictive," Ackermann told a conference of corporate executives in Berlin. "We need to find the right balance between stricter regulation of the financial sector and the impacts these have on the economy as a whole."

A credit crunch couldn’t come at a worse time for the European economy, which is now teetering on the brink of another recession. That, in turn, is raising debt pressures on other countries with weak economies, including Ireland, Portugal and Spain. Unless those economies recover sharply, their governments will likely have to follow Greece down the path of debt restructuring, former IMF chief economist Kenneth Rogoff told a group of business reporters Friday.

While a Greek debt restructuring may now be unavoidable, it will represent the beginning of a long, difficult period of recovery as investors stop lending to the Greek government. Jittery lenders and investors may also have second thoughts about lending to countries now seen as being at risk of a future default, according to Roger Nightingale, economist at RDN Associates.

“It’s going to be pretty frightful,” he said. “There’ll be no private sector lending to Greece, and they’ll be no private sector lending to any at-risk country for years to come. I think this is no solution at all. This makes things very much worse.”

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Posted in: Business

Health Insurance : What is it?

The term health insurance is generally used to describe a form of insurance that pays for medical expenses. It is sometimes used more broadly to include insurance covering disability or long-term nursing or custodial care needs. It may be provided through a government-sponsored social insurance program, or from private insurance companies. It may be purchased on a group basis (e.g., by a firm to cover its employees) or purchased by individual consumers. In each case, the covered groups or individuals pay premiums or taxes to help protect themselves from high or unexpected healthcare expenses. Similar benefits paying for medical expenses may also be provided through social welfare programs funded by the government.

Health insurance works by estimating the overall risk of healthcare expenses and developing a routine finance structure (such as a monthly premium or annual tax) that will ensure that money is available to pay for the healthcare benefits specified in the insurance agreement. The benefit is administered by a central organization, most often either a government agency or a private or not-for-profit entity operating a health plan.

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Posted in: Insurance

Cutting Out Uncovered Medical Expenses

Although Medicare has proven to be a valuable service especially in terms of assisting in medical related expenses and has become an integral element in health planning for senior citizens, the fact remains that it was not designed as a one stop medical requirement coverage. Taking into account the rising healthcare costs, the number of expenses that are not shouldered by Medicare like outpatient hospital services, deductibles, physician’s professional fees and co-insurances are but some of the increasing expenses that a patient has to shoulder himself. Unless a patient is equipped with supplemental coverages for health insurance, the only place this payment is coming from would be from the patient’s pocket.

For this reason, the AFL-CIO was established for the welfare and interest of the retired worker’s groups for providing affordable insurance coverage in terms of Retiree Health which is described as a supplemental coverage of Medicare.

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Posted in: Insurance