The bank will continue operations just like normal after the takeover meaning customers can use various services of the bank. The state-owned China Construction bank will deal with all of the business operations for the following year.
This could be a sign that the Chinese government will start to take over more small banks with large credit issues. According to Bloomberg, small lenders who hold 13% of the market like Baoshang account for around a quarter of the China banking sectors liabilities. The interbanking market has run on the assumption that large debts were backed by the government.
In terms of repayment, for holdings under 50 million yuan ($7.23 million), the government guarantees full repayment. However, for corporate deposits and interbank liabilities above 50 million yuan, the repayment amount will be negotiated by regulators.
The People’s Bank of China claims that this is an isolated case after the Chinese market went into a craze. The PBOC also stated that they are confident with maintaining stability in the markets, and have no plans to take control of any other types of institutions in the near future. Furthermore, 430 billion yuan ($62.3 billion) was dumped into the market by the central bank in hopes of calming the market further.
In a statement, the central bank stated, "The PBOC has fully estimated and prepared for the various factors that will affect liquidity in June, and will flexibly use reverse repurchase agreements and the medium-term lending facility in accordance with the cash supply-and-demand situation of the market".
As of the 2016 annual report, Baoshang Bank had 193 billion yuan ($27 billion) in borrowings and repurchase agreements. The 2016 report was the last report Baoshang Bank published, which had already created skepticisms. As well as, in 2013 the bank was temporarily banned from interbank trading for having capital problems.
In a similar case in 2018 the Chinese government took control of Anbang Insurance Group Co. Although not a bank the insurance company was participating in illegal business practices. According to the China Insurance Regulatory Commission, the actions of the company were brought to light after the chairman was charged with fundraising fraud and embezzlement.
Tomorrow Group, the majority holder of Baoshang Bank, was formally operated by Chinese business tycoon Xiao Jianhua. Xiao was accused of the manipulation of stocks and futures markets, and it was also alleged he ordered countless amounts of brides to numerous institutions. It is believed that he is currently in mainland China assisting authorities after he was abducted from his temporary residence in Hong Kong and has not been seen since.
In a report released June 2nd, the PBOC continued to urge consumers that this is an extraordinary case. Despite a lack of uncertainty, it seems clear that Baoshang was taken over because of the illegal actions performed to benefit Tomorrow Group. However, this has created a scare in the market that will be closely monitored over the next few months.