USD1.2 billion in fraud at a single bank branch in western China. Everything is fine. https://twitter.com/BaldingsWorld/status/957554786454331393

What if we make the probably not unrealistic assumption that financial fraud in China is like official corruption, that everyone does it but almost no one gets punished for it. What does that suggest about the actual state of the financial system? (h/t @KangHexin for the graphic)

Remember, last week we learned that one municipal branch of Shanghai Pudong Development Bank-one branch!-made $12 billion in bogus loans. At the risk of sounding like your crazy uncle, is there any reason to think this isn't the tip of the iceberg? https://twitter.com/tombschrader/status/955171487631241217

To put the size of those loans in perspective, $12 billion in yearly revenues is a middle-of-the-pack Fortune 500 company.

Or to make a more direct comparison, $12 billion is about 17% of the entire change in Bank of America's loan portfolio for last year. Again, this is *one municipal branch* of China's ninth-largest bank

Fun fact: D.R. Horton, #232 on that Fortune 500 list, is by far the United States' largest homebuilder. They made more than $12 billion dollars by closing on more than 45,000 homes.

Someone please tell me I'm not this guy.

Special bonus detail missing from the Xinhua English report on the $12 billion in fake loans: the branch in question was considered a "superstar" with "zero bad loans" https://m.sohu.com/a/217893795_260616/?pvid=000115_3w_a

One other thing I want to make clear: in this thread I've tried to be careful to distinguish "municipal bank branches" from just regular old branches.

Folks with some China knowledge may know this, but those without probably don't: a "municipal bank branch" is my translation of the word 分行. It's basically a regional office, a little like the BoA regional offices in the picture (though there are usually more 分行 than this).

So the Chengdu "municipal bank branch" is the office in Chengdu that oversees all the sub-branches in the city. A "sub-branch" (written 支行) is basically just a regular bank branch. Shanghai Pudong Development Bank has 18 of these in Chengdu.

So it was the SPDB's regional office that was responsible for issuing the $12 billion in bad loans. For reference that's equal to about 5% of Chengdu's 2017 nominal GDP, which is ... kinda nuts? Again, these are the loans from *one* 分行.

The $1.2 billion that came out today is, if anything, even crazier, despite the smaller absolute size. Those were bad loans made through a sub-branch, which is literally just a normal corner banking branch.

The branch in question belonged to China Postal Savings bank. It was one of 12 sub-branches in the city of Wuwei, which is a little nothing city on the road between Lanzhou and Urumqi. Wuwei's *total* GDP for 2015 was $6.7 billion.

In other words: one tiny corner bank branch in Wuwei made bad loans equivalent to 18 percent of the city's annual GDP.

This would be a little like if your friendly neighborhood Wells Fargo in Topeka, Kansas made $2 billion in bad loans.

So the $640 billion dollar question is, how common is this kind of thing?

I don't know, but I have to believe it's light years beyond what's reflected in official bad loan statistics.

Internal controls at Chinese banks are bad enough that this kind of stuff can happen: https://twitter.com/BaldingsWorld/status/957554786454331393

And again, if the financial sector is anything like politics--which, given Party state control of the financial sector, it probably is--the chances of actually getting caught for malfeasance are quite low.

And the rewards for malfeasance are, given the amounts of cash involved, self-evidently high.

So, TL;DR, China's financial system is probably going to implode and we're all going to die in the sans culottes uprising. Oh well, we had a good run.