China’s banking regulator is cracking down on financial engineering that Chinese banks have used to disguise trillions of dollars in risky loans as investment products, reports the Financial Times. The clampdown, which will force banks to make provisions they previously avoided by disguising loans as investments, is designed to deflate one of the fastest-growing areas of the vast shadow banking apparatus, where bad debts are increasing. Under the new rules, banks can no longer use wealth management funds to invest directly or indirectly in their own investment products. The lenders will also have to fully provision for the investment products that are based on bank loans.

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