Meanwhile, in the domestic banking scene… [See part 1 on capital outflows here.]
China’s financial system stability is increasingly intertwined with its shadow banking system — which is big, according to various tallies. Bank of America Merrill Lynch says it accounts for a quarter of all bank loans, with the biggest segments being wealth management products or WMPs (8 per cent) and trust companies (8.9 per cent). Fitch Ratings says that WMPs now account for about 16 per cent of all commercial bank deposits; KPMG says trust companies will overtake insurance to become the second-biggest component of the financial sector. Read more
How long can this go on? (Click to enlarge.)
Spain is leaking capital. Data from the Bank of Spain released yesterday showed that almost €100bn has left the country in the first three months of the year (chart from El Pais):
Italy’s March balance of payments data showed a big net outflow for investment
This was something picked up by Deutsche Bank’s Alan Ruskin (and us, here) as suggesting an accelerating outflow of foreign capital from Italy, now that the LTRO glow had worn off. It appeared to be happening, worryingly, at a rate that was not being offset by Italian repatriation of capital. Read more
In the frantic flight to safety on Thursday, Treasury yields touched an all-time low of 26 basis points, the NY Times reports. Rates on even shorter-term credit, including six-month Treasury bills and overnight loans in the vast market for repurchase agreements, swung toward zero Thursday. Meanwhile Bank of New York Mellon said it would start charging a fee on large deposits in response to a “sudden” and “significant” increase in its balance sheet, the FT reports. Accounts with an average deposit of more than $50m will be charged a 13 basis point annual fee on the excess and an additional fee if short-term Treasury bills produce negative yields. Yields on one-month bills did fall into negative territory on Thursday, dipping as low as -.0102 per cent before closing at zero.
Russia is moving to improve its investment climate and counteract growing capital flight, a top aide to Dmitry Medvedev has said, as the president draws up economic reforms on which to base a possible re-election bid, the FT reports. Medvedev came to power in 2008, after his mentor, Vladimir Putin, became prime minister after reaching the constitutional limit of two successive presidential terms. In recent weeks Medvedev has been laying markers for a re-election campaign, contradicting assumptions that Putin might return as president in 2012. Arkady Dvorkovich, the president’s top economic adviser, told the FT that Medvedev would soon unveil steps to improve the situation for investors. A net $21bn fled Russia in the first quarter of this year, despite near-record oil prices. Fresh data on Thursday showed a further $1.6bn left last week, bringing total outflows in April to $5.3bn, up from $4.3bn in March, according to estimates by Goldman Sachs.