China launches risk hedging tool to ease jitters after Baoshang Bank takeover

It is offered to investors in the $289m worth of six-month certificates of deposit.

Reuters reported that the People’s Bank of China (PBoC) unveiled a credit risk hedging tool for debt holders issued by the Bank of Jinzhou as part of the central bank’s measures to calm market jitters about the health of smaller banks, following regulators’ seizure of Inner-Mongolia-based Baoshang Bank due to serious credit risks.

Called Credit Risk Mitigation Warrant (CRMW), the new hedging tool is offered to investors in the $289m (RMB2b) worth of six-month certificates of deposit (CD) with yield of 3.21% issued by the Bank of Jinzhou, according to a statement posted on Chinamoney.com.cn, the official website for China’s interbank market.

Also read: China's first bank seizure in decades highlights growing small bank risk

The seizure of Baoshang Bank drove interbank financing costs up and stirred investor concerns over the health of other regional lenders, and sparked worries about the broader economy although the China Banking and Insurance Regulatory Commission (CBIRC) noted that the country’s big banks are still willing to continue interbank business with small banks despite growing risk.

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