China regulator carries out inspections to sniff out shadow banking activity

Some trust companies halted their channel business amidst intensified scrutiny.

Reuters reports that China’s banking regulator is said to be carrying out nationwide inspections of financial institutions like trust to monitor shadow banking and interbank activities.

The move follows a notice issued by the China Banking Regulatory Commission (CBRC) in January to intensify oversight in the financial services sector. 

Also read: China banks' assets plunge to single digits in 2017 as loans take over

Inspections covered the channel businesses of companies who move deposits into risky investments via products to escape capital or investment regulations, which has even prompted a number of trust companies to suspend their channel business.

Banks have been turning to structured deposits with derivative features as a way of giving depositors high-yield products despite the widespread crackdown. Issuance of structured deposits surged almost 47% to a record $1.4t (8.8 yuan) in the year through March with more than 1.8t yuan of new stockpile added this year alone, indicating a lengthy battle ahead for the country’s regulators. 

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