The People’s Bank of China is cutting the reserve requirement for banks from 17.5 percent to 17 percent effective tomorrow. Detailed context and analysis from Pete Sweeney at Reuters:
In theory a reserve requirement cut makes banks more active and profitable but less stable. The move makes it easier for banks to make new loans. It also makes it easier for banks with stock market loans and other problem loans to extend those loans even though the borrower may not soon be in a position to repay them. In a similar way, it makes it easier for the central bank to leave financial troubled banks standing a little longer.