To Curb Idle Capital, Long-Term Enhancement of Effective Demand Still Needed (AI Translation)
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文｜财新周刊 丁锋 范浅蝉 刘冉
By Caixin Weekly's Ding Feng, Fan Qianchan, Liu Ran
在严防资金空转的政策导向下，金融管理部门出手整治银行高息揽储。
Under the policy direction of strictly preventing the idle circulation of funds, financial regulatory authorities have taken action to rectify banks that attract deposits with high interest rates.
2024年4月上旬，市场利率定价自律机制（下称“利率自律机制”）下发《关于禁止通过手工补息高息揽储 维护存款市场竞争秩序的倡议》（下称《倡议》），要求银行不得通过事前承诺、到期手工补付息等方式，变相突破存款利率授权要求或自律上限；此前违规作出的补息承诺，在付息日一律不得支付；银行应立即开展自查，并于2024年4月底前完成整改，整改报告报利率自律机制秘书处。
In early April 2024, the market interest rate pricing self-discipline mechanism (hereinafter referred to as "interest rate self-discipline mechanism") issued the "Initiative on Prohibiting High-Interest Deposit Gathering through Manual Interest Subsidies to Maintain Order in the Deposit Market" (hereinafter referred to as the "Initiative"). The Initiative mandates that banks must not indirectly exceed deposit interest rate authorization requirements or self-imposed limits by promising upfront or manually paying additional interest upon maturity. Any prior commitments to pay additional interest made in violation of regulations must not be honored on the payment date. Banks are required to immediately conduct self-inspections and complete rectifications by the end of April 2024, with reports submitted to the secretariat of the interest rate self-discipline mechanism.
财新获悉，4月下旬，全国利率自律机制接连召集国有大行、股份制行和部分城商行分头开会，省级利率自律机制亦向辖内城商行、农商行等传达精神，主题就是强调必须严格执行《倡议》。
Caixin has learned that in late April, the national interest rate self-discipline mechanism convened separate meetings with major state-owned banks, joint-stock banks, and some city commercial banks. Provincial-level interest rate self-discipline mechanisms also communicated to local city commercial banks and rural commercial banks under their jurisdiction, emphasizing the strict implementation of the "Initiative."
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- In early April 2024, China's financial regulators issued an initiative under the market interest rate pricing self-discipline mechanism to prohibit banks from using manual interest compensation as a means to attract high-interest deposits and maintain order in the deposit market. Banks were required to conduct self-inspections and rectify any non-compliance by the end of April 2024.
- The rate self-discipline mechanism, established in September 2013 and guided by the People's Bank of China, has played a significant role in coordinating market pricing and advancing interest rate market reforms. This initiative marks its first formal issuance in over a decade, reflecting a firm regulatory stance against practices that circumvent deposit rate controls.
- Manual interest compensation was originally intended to correct operational errors but had been exploited by some banks under competitive pressure to offer higher than regulated deposit rates, particularly to major corporate clients. This practice was seen as contributing to inefficient capital utilization and financial risks, prompting zero tolerance from regulators aiming to curb these activities.
Under the policy direction of strictly preventing the idle circulation of funds, financial regulatory authorities have taken action to rectify banks that attract deposits with high interest rates. In early April 2024, the market interest rate pricing self-discipline mechanism issued an "Initiative" mandating banks to avoid exceeding deposit interest rate limits by offering additional interest upon maturity. Banks are required to conduct self-inspections and complete rectifications by the end of April 2024 [para. 1].
The interest rate self-regulation mechanism, established in September 2013 under the supervision of the People's Bank of China (PBOC), has played a significant role in coordinating market-based interest rates. This recent "Initiative" marks its first formal issuance aimed at curbing practices that indirectly raise deposit rates through manual adjustments [para. 2][para. 3].
Manual interest adjustments were originally intended for correcting operational errors but have been exploited under competitive pressures to attract major corporate clients by offering higher rates. This has led to a focus on premium clients whose risk costs are negligible, creating an 'inversion' in the rates for deposits and loans [para. 4][para. 5].
The phenomenon of idle capital has been a recurring issue, with funds being circulated among financial institutions or between banks and enterprises for arbitrage purposes. In response, regulatory authorities have adopted a zero-tolerance stance towards manual interest subsidies and high-interest deposit gathering [para. 6][para. 7].
On April 18, 2024, Zou Lan from PBOC highlighted ongoing efforts to monitor idle capital circulation and improve management mechanisms as part of broader economic transformation efforts [para. 8]. The self-regulatory mechanism affects bank deposit rates by setting upper limits and guiding market-based adjustments. Recent reductions in listed deposit rates across major banks reflect these regulatory efforts [para. 9].
Despite these measures, there remains inconsistency in how banks implement these changes, with some regions showing slower progress due to weaker oversight. Some banks continue using indirect methods like large-denomination certificates of deposit or structured deposits to maintain high-interest offerings [para. 10][para. 11].
Financial penalties have been imposed on banks for improper deposit-taking practices as part of tightening controls on such activities. Efforts continue to standardize practices across the banking sector to ensure fair competition and prevent excessive or malicious behaviors that lead to inefficient fund utilization [para. 12][para. 13].
Overall, while policies aimed at curbing high-interest deposits are expected to mitigate idle fund circulation and support more efficient financial resource utilization, challenges remain in fully aligning bank operations with regulatory expectations without stifling legitimate business activities [para. 14].
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