China has failed to curb excesses in its credit system and faces mounting risks of a full-blown banking crisis, according to early warning indicators released by the [Bank of International Settlements – BIS.] BIS warned in its quarterly report that China’s "credit to GDP gap" has reached 30.1, the highest to date and in a different league altogether from any other major country tracked by the institution. It’s significantly higher than during East Asia's speculative boom in 1997 or the US subprime bubble. Studies of banking crises around the world over the last sixty years suggest that any score above ten requires careful monitoring. The credit to GDP gap measures deviations from normal patterns to strip out cultural differences within any one country. It’s based on the work of Hyman Minsky and has proved to be the best single gauge of banking risk, although the final denouement can take longer than assumed. (Source: The Telegraph – UK) (VIEW LINK)