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FINANCE
Bloomberg Businessweek
October 8, 2018
34
○ Many savers can’t get their money
back after hundreds of online
platforms go under
China’s Peer-to-Peer
Lending
Crash
“I am too small to ight them,” a 31-year-old woman
from Zhejiang province, China, wrote in a note to
her parents in early September after losing almost
$40,000 when an online peer-to-peer lending irm
went bust. “A state-backed P2P just ran away, its
shareholder unwilling to take any responsibility,
investigators are dragging their feet. I am too tired
and cannot see any hope.” The woman then hanged
herself. Her death and her letter were chronicled
in chat group posts on the social media site Weibo.
Hundreds of others who say they were victims
of the same company, PPMiao, came to Shanghai
to protest in late August, only to be turned back by
police and security guards outside the International
Finance Centre, where a irm connected to the
lender has an oice. “We lost everything, and I
THE BOTTOM LINE The corruption trial of the mayor of
Regensburg highlights the risks endemic in Germany’s network of
385 local savings banks, or Sparkassen.
France, Italy, and Austria once had compa-
rable networks of local savings banks, but they’ve
sought to reduce conlicts of interest and shore up
the institutions by encouraging them to merge and
bring in outside investors. The risks were exposed
in Spain after the 2008 debt crisis, when many of
the Cajas—state-linked savings banks—had to be
taken over by the government or forced to merge
to stabilize the country’s inancial system. “There
is a reason why so many other EU countries that
had similar systems have reformed them,” says
Nicolas Véron, a senior fellow at Bruegel, an eco-
nomic think tank in Brussels. “Germany is basically
the last one that hasn’t.”
Close political connections give the banks pow-
erful allies, creating concerns about the inancial
dependence of political leaders on institutions
they’re supposed to supervise. Bruegel found that
Sparkassen board positions can account for more
than 10 percent of some politicians’ income. And
loan quality tends to deteriorate in election years
as politicians boost lending in pursuit of votes,
according to the Halle Institute. Meanwhile, more
aggressive purchases of state bonds after elections
suggest the banks seek to curry favor with newly
elected oicials, ECB researchers say. As a result
of these ties, the Sparkassen cast a long shadow
in European banking, with Merkel’s government
adopting friendly stances such as rejecting
Europewide deposit insurance and opposing
regulations that would hurt the lenders.
Despite periodic scandals like the one in
Regensburg, there’s no widespread call to over-
haul the Sparkassen. The allegations against the
popular Social Democratic mayor sent shock waves
through the boardrooms and cobblestone streets
of Regensburg as the scandal, which also involved
inancing the local professional soccer club, touched
just about everyone. But after initial calls for
Wolbergs’s resignation, oicials have taken a milder
tone. The court in March reduced charges from brib-
ery to abuse of oice and isn’t actively questioning
the validity of the loan to the developer. Wolbergs,
who declined to comment, is ighting the charges
and has said he’ll run for reelection in 2020.
Defenders of the system point to the banks’ sta-
bility in past crises, their commitment to community
development, and a deep well of local expertise that
the likes of Deutsche Bank and Commerzbank can’t
match. Unlike their bigger brethren, they’re widely
seen as the good guys of banking, serving the needs
of average Germans. “There’s no reason to question
the structure of the Sparkassen,” says Jürgen Huber,
a deputy mayor in Regensburg from the Green Party.
“They’re part of the community. That’s a distinct
advantage over big banks.”
—Stephan Kahl, Piotr
Skolimowski, and Boris Groendahl
have tuition coming due for my 3-year-old son’s kin-
dergarten next month,” said one man, who gave
his name only as Chen before being put on a police
bus and sent home to his farm in Jiangxi province,
14 hours away by train.
As many as 4,000 people have lost as much as
$117 million as a result of the failure of PPMiao,
according to savers who say they were burned, and
many of them have been coming to China’s major
cities seeking restitution. More than 400 peer-
to-peer lending platforms collapsed from June
through August, according to Shanghai-based
researcher Yingcan Group. That still leaves about
1,800, a number Chinese investment bank China
International Capital Corp. expects to contract
to fewer than 200 after more dominoes fall. “It’s
“Thereisa
reason whyso
manyother
EUcountries
thathad similar
systemshave
reformed
them”