China Scraps Limit on Banks’ Local Government Bond Purchases
Banks that underwrite local government bond sales will no longer face restrictions on the amount of the debt they can buy themselves, the latest move by policy makers to help cash-strapped authorities raise funds for infrastructure investment to support flagging economic growth.
Lenders were previously only allowed to buy up to 20% of any local government bonds issued by their underwriting departments, a ceiling imposed in 2012 out of concern that the trading and investment arms of banks were mopping up unwanted bonds to ensure the success of the sale, but at the same time exposing their balance sheets to additional risk.
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