Stock liquidity bubble can't be solved by banks
By Ma Hongman (China Daily)Updated: 2007-02-12 08:35
Such a policy is obviously more in line with the development of a modern market economy. The banks are commercial entities that aim to make profits. In their own interest, they will assess the risks of making the loans and will determine whether the collateral can cover possible losses.
It will not work if regulators require the banks to shoulder the responsibility of solving the macroeconomic problem of excessive liquidity.
It is the regulators' duty to help the commercial banks to establish their own risk assessment system. They should also provide timely information for the financial institutions to make the right decisions and reduce risk.
For example, they can establish a nationwide individual credit network and a unified statistical database. This way the banks can have more information on loan applicants.
The author holds a doctorate in economics from the Shanghai Academy of Social Sciences.
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