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HONG KONG, July 12 (Reuters Breakingviews) - China’s small-bank crisis is far from over. On Monday authorities in Henan finally agreed to cover customer deposits that were frozen in April after getting caught in a possible fraud. It’s a cautionary tale for the country’s 1,600-odd village banks that lend to small businesses, are most exposed if national GDP tanks, and receive insufficient regulatory oversight.

Last year, the People’s Bank of China identified a group of high-risk lenders that are dominated by this tier of lenders, with some $300 billion of assets between them per the China Banking Association, as well as another 1,500 larger so-called rural commercial banks. All told, about 3,800 rural lenders account for 12% of the industry’s assets.