Baoshang Bank was a shareholder's ATM — until the state pulled the plug

On 24 May 2019 the People's Bank of China and the banking regulator seized Baoshang Bank — the central bank's first such takeover in 20 years — citing serious credit risks, and appointed China Construction Bank to run its operations for a year. The bank, with 4.73 million customers, had not published an annual report since 2016; at the end of that year its outstanding loans stood at 156.5 billion yuan, a jump of 65 per cent in two years.

The cause sat in the ownership. Tomorrow Group held an 89 per cent controlling stake and, between 2005 and 2019, the bank extended 156 billion yuan of loans to Tomorrow affiliates — none of it repaid. By the end of 2019 the bank was 140 billion yuan in the red.

The resolution drew the line between who the state protects and who pays. Personal deposits were guaranteed in full — the first real use of the Deposit Insurance Fund created in 2015 — and large institutional creditors received about a 90 per cent guarantee on average, against less than 60 per cent without state funding. A new bank, Mengshang, took over the Inner Mongolia business; four out-of-region branches went to Huishang Bank; the central bank injected 23.5 billion yuan to keep deposit liquidity flowing.

In August 2020 the central bank announced the bank would be declared bankrupt; the regulator agreed on 12 November, and on 23 November 2020 the Beijing No. 1 Intermediate People's Court accepted the bankruptcy liquidation case — the first bankruptcy of a commercial bank in China. The seizure had already repriced the whole system: large lenders shunned smaller banks' paper, regional lenders like Bank of Jinzhou struggled to fund themselves, and the central bank pushed 500 billion yuan into small banks via its lending facility in June 2019.