| 1 | The central bank has started to drain liquidity by lifting banks' reserve requirements, and some banks have been told to reduce their lending. | |
| 2 | The so-called reserve requirement ratio is an important tool in China for limiting how much money can be lent by commercial banks. | |
| 3 | If the reserve requirement is 10%, for example, a bank that receives a $100 deposit may lend out $90 of that deposit. | |
| 4 | Their average nonperforming loan ratio is way below 2%, their average capital adequacy ratio is above 10%, while their reserve requirement ratio is at 21.5%. | |
| 5 | Chinese policymakers have decided to broaden the base of financial institutions required to comply with 21.5% reserve requirements, which will effectuate a further tightening of liquidity. |
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