The only country to solve the Too Big To Fail problem is China – the one emerging market with globally systemically important banks. The reason China is in this advantageous position is because its major banks are state-owned and the government has $3800bn in foreign exchange reserves as a bail-out fund.
There are reasons to be concerned about Chinese bank assets, with the country's economy slowing down, the property sector under pressure and the growth of a large-scale shadow banking sector in which much of the risk may still find its way back to the banks. But whatever happens, it is a fairly safe bet that no large bank will be allowed to fail. State-owned banks only fail if the state fails – hardly a realistic prospect in China’s case.
