Foreign banks in China have warned that they will suffer severe "collateral damage" from new rules aimed at limiting off-balance sheet lending by domestic banks.
Beijing has drafted regulations to restrict interbank loans after financial institutions used them to circumvent government-imposed credit controls. The restrictions are directed at domestic banks that have aggressively increased their interbank business in recent years, but foreign banks, already struggling in China, fear they will be caught in the crossfire.
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If the new rules were to go into force as currently drafted, international banks would lose a critical source of funding and revenue for their operations, foreign bankers told the Financial Times.
"They have not thought about the impact on foreign banks. We will just be collateral damage in their crackdown," said a senior executive with a midsized foreign bank based in Shanghai. "The regulations are well-intentioned but could completely undermine our business model."