As China's regulators flesh out details of a long-awaited master plan to clean up the country's banking sector, it's becoming increasingly evident that much of the burden is going to fall on the shoulders of local governments who between them own or control hundreds of the weakest and riskiest small lenders.
Although the People's Bank of China (PBOC) orchestrated and managed the recent bailouts of lower-tier banks including Baoshang Bank Co. Ltd., Bank of Jinzhou Co. Ltd. and Hengfeng Bank Co. Ltd., provincial-level governments and state-owned enterprises (SOEs) played an important role in the recapitalizations and restructurings, both in terms of organization and funding. A new plan to push ahead with reform of problematic small and midsize banks makes it clear that the central authorities are passing the baton down to the provinces to come up with their own tailor-made solutions, organize the cleanup and find the money to pay for it.
