The Economist: "The pain in question arose in China’s fledgling interbank markets, where banks borrow from each other to meet temporary shortfalls in funding. Banks often find themselves running low on cash at this time of year, thanks to corporate tax payments, holiday withdrawals, and their need to keep cash on their balance-sheets to pass mid-year regulatory inspections. However, they can typically count on China’s central bank, the People’s Bank of China (PBOC), to inject more money into the market if liquidity gets too tight.
Last week it stunned everyone by refusing to do so. Interest rates spiked. One benchmark, the Shanghai Interbank Offered Rate or SHIBOR, peaked on June 20th at 13.4% for overnight loans (see chart). Another rate hit 25% during trading."
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