China’s banks reportedly have been instructed by the country’s banking regulator to undergo stress tests for the scenario of a 60 percent plunge in home prices.

The regulator is directing banks to account for a 50 percent to 60 percent drop in cities where prices have jumped out of control, a knowledgeable source tells Bloomberg.

Prior stress tests performed in the past year dealt with price declines of up to 30 percent.

In a July 20 statement, the China Banking Regulatory Commission said banks should “continue to deepen” their stress tests on real estate lending.

Obviously Chinese officials are afraid of a housing meltdown, just like the one that has taken place in the United States. Chinese residential property prices surged 68 percent in the first quarter.

The government has recently taken several steps to deflate the housing bubble. It lifted minimum mortgage rates and down payments for second homes and suspended lending for third homes.

The bubble has begun to burst, says Harvard economist Ken Rogoff. “You’re starting to see that collapse in property and it’s going to hit the banking system,” he told Bloomberg.

In June, real estate prices fell for the first time in almost 18 months in 70 large Chinese cities.

Xu Shaoshi, China's minister of land and resources, says the real estate market could face a "total correction" in the third quarter, Germany’s Spiegel Online reports.