Some banks woke up early to the risks and are reducing their off-balance-sheet loan commitments as fast as they can.
The accepted practice in bank accounting is to set up significant loan-loss reserves only when the commitment is availed of and the arrangement becomes an on-balance-sheet loan.
Moreover, Chinese banking institutions in recent years have been generating substantial fee income by creating off-balance-sheet loan products that may leave them on the hook, either formally or informally, for losses.
The banks arranging the Chrysler and Alliance loan packages have decided to hold them on balance sheet and wait until the fall to see if investors are willing to jump back into the loan market.
Writing a loan down, on the other hand, means that it stays on the bank's balance sheet at a reduced but perhaps still inflated value, and the collateral backing the loan is not sold.
These lenders, with no balance sheet and little capital, quickly garnered 15% of housing loan approvals.
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It's a similar dynamic to what is happening with Wall Street banks that committed to fund leveraged buyouts, only to have trouble selling those loans in the syndicated loan market--they have to hold them on balance sheet until the credit markets come back to life.
Japanese financial stocks, as especially the megabanks, have been in a positive feedback loop of balance sheet and income statement translation gains from a weaker yen and the prospect of increased loan volumes and interest earnings from higher domestic loan demand.
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SHARE's balance sheet, at a cost that is three to four percentage points cheaper than it pays for a bank loan.
In our consolidated balance sheet these shares are carried at cost rather than market, since they are owned by Mutual Savings and Loan, a non-insurance subsidiary.
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