Thursday, December 18, 2008
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The other thing about risk management is that you can properly risk manage things not only by decreasing risk but increasing loss reserves. It’s perfectly fine to lend to risky clients if you have the loss reserves to cover defaults.
Also his article makes it seem like the only reason that Chinese banks fixed themselves was Western pressure, and now that pressure is gone, that the government will backslide. In fact, the reason the Chinese government has spent the last ten years fixing the banking system was because they were (and still are) terrified of a banking crisis that would bring down the government.
Recent events haven’t reduced this fear, and pointing out that Chinese banks aren’t collapsing when American banks are, should be enough to keep banks doing good risk management.
If Westerners want Chinese banks to have good risk management, the thing to do is not to lecture and instead say “look you guys are geniuses and we are idiots, study what we did over the last ten years and whatever you do, don’t do the same things, but rather keep doing what you were doing.”