How Much is that Money in the Window?

!!439px-Yuan_collectionHow Much is that Money in the Window?

Chinese banks in the rural interior are putting money in their buildings’ windows. This is to indicate to their depositors that there is no need to draw all there money out because, well, there it is.

Should this reassure the rural poor and we Americans in the soundness of the Chinese banking system?

No. This apparent show of transparency and honesty is not that at all but more a three card Monte trick designed to fool the rubes. What proportion of the banks’ actual deposits are in those windows? Is it actually the money from that bank or from a central bank? And how much money is there in those windows? A Juan is worth about 16 cents in this country. Is there a lot of money in those windows or is it more akin to pocket change?

In an organized society, it might be better to rely on banking regulations than cheap publicity stunts to reassure the public. In the background of this story is the collapse last year of two co-ops that served banking functions. Many lost their life savings and now people are worried that once again all their money will disappear into China’s badly regulated, boom and bust, financial system.

If the Chinese want to avoid bank runs, insure the deposits. If you can always get your money whether the bank folds or not, you won’t be out there standing in the rain desperately trying not to be the last one in line. But that would imply a government faith in the banking system that may well not exist. It’s one thing for the poor rural farmers to lose their money and quite another for the government in Beijing to suffer loss

Business ethics is not just good public relations. Business ethics exists in a background of honesty and fair dealing. Sometimes, regulation is a necessary additive to make that honesty self-evident. In our past history, we have seen good banks destroyed by a run on its cash. To protect good banks and all depositors, we have rules. Those rules make for stable banks and reliable customers. However much the free market fundamentalists would prefer the Chinese banking system, our system works better.

I hope I’m wrong about the Chinese banks and that these Chinese, often rural poor, will be able put their money in or take it out as they choose. Banking is an important way of accelerating the benefits of having money. But however this situation develops, it is a cautionary tale of business operating without enough rules.

James Pilant

Chinese banks stack money in windows to quell rumours they have run out | World news |

Rural banks in China‘s eastern city of Yancheng stacked piles of money in plain view behind teller windows to calm depositors queueing at bank branches for a third consecutive day following rumours they had run out of cash.

According to residents of Sheyang county, panic began on Monday with a rumour that a branch of one local bank turned down a customer’s request for a ¥200,000 (£20) withdrawal. Banks declined to comment and Reuters was unable to verify the rumour.

The affected institutions are tiny compared with the scale of China’s financial sector, and the rush for cash appears to be an isolated incident so far. Rumours also found especially fertile ground there after a failure of less-regulated three rural credit co-operatives last January. Yet the news caught nationwide attention, reflecting growing public anxiety as regulators signal greater tolerance for credit defaults.

Miao Dongmei, who runs a baby supply store opposite the branch of the Jiangsu Sheyang Rural Commercial Bank first targeted by depositors, said she kept money at the bank but did not join the stampede. However, she said she had seen other customers carrying baskets full of money out of the bank branch, while armoured cars kept pulling up to deliver fresh loads of currency. Sheyang bank employees told Reuters some branches had been open 24 hours over the past two days.

A visit to one branch showed tellers had stacked bricks of yuan notes immediately behind the glass, piled above head level, and assembled cash piles the size and height of a double bed in the back to show there was enough to go around.

Despite repeated appeals from local officials for calm, by Tuesday the run had extended to another local bank, the Rural Commercial Bank of Huanghai, residents said.

via Chinese banks stack money in windows to quell rumours they have run out | World news |

From around the web.

From the web site, China Bystander.

Earlier this week, the central bank and China Construction Bank were reportedly discussing the bailout of a developer owing 3.5 billion yuan — believed to be Zhejiang Xingrun — that had borrowed informally at rates of 18-36%. Zhejiang Xingrun is based in Ningbo, one of the cities where government data released earlier this week showed home prices falling. Another is Wenzhou, a shadow banking centre. Two of Zhejiang Xingrun’s owners have been detained by police for what is being described as illegal fundraising.

Separately, the central government’s 2014-20 urbanisation plan released earlier this week calls for a national property database to be set up. This would be a precursor to a new property tax to fund the urbanization plan and to allow local government finance to be reformed. However, it will likely face local footdragging from the many officials who have squirreled away ill-gotten wealth in the form of real estate — even if some of that real estate is starting to look less valuable.

China Bystander. (2014, March 20). China’s regulators show their nervousness about real estate defaults. Retrieved from