Research About Bank Deposit Rate Liberalization In China

At present, the reform of interest rate liberalization in China has entered the final critical stage, which is deposit rate liberalization. The completion of the deposit rate liberalization marks the full completion of interest rate liberalization. So this paper makes research about bank deposit rate liberalization in china, using qualitative and quantitative method.In order to study the bank deposit rate liberalization in China, this paper uses Loanable Funds Theory, Financial Repression and Financial Deepening Theory as the theoretical basis, and learns from foreign experiences to analyze the impact of the deposit interest rate liberalization on China’s commercial banks, as well as the responses of commercial banks. In learning from international experience, on the one hand, this paper studies and analyzes the interest rate liberalization on the United States, Japan, Taiwan and Latin American countries, summarizes their experiences and lessons:the successful implementation of the interest rate liberalization needs a stable macroeconomic environment, perfect financial markets and financial system, sound financial regulation, and the implementation should also be phased orderly; on the other hand, using data from countries which have already finished their interest rate liberalization, finds out that in extreme cases, the highest deposit rates could rise to an average level of22.22%, and the highest increase in deposit rates to an average of11.81%; the minimum deposit and loan spreads could be reduced to2.27%; the average standard deviation of deposit rate fluctuations could be6.28%. Besides, this paper makes a Panel data model using data from14countries with complete data. The model shows that, under normal circumstances, interest rate liberalization will cause interest rates on deposits significantly increasing3%. Based on the quantitative analysis, this paper analyzes the impact of deposit rate liberalization on profitability and risk of commercial banks in China. The deposit rate liberalization is conducive to commercial banks to improve operational efficiency; it also requires commercial banks to optimize business structure and strengthen risk management. Then the paper points out that commercial banks in China should make reforms and build systems in response to deposit rate liberalization, such as making reforms of the interest rate risk management, strengthening banking supervision system to protect depositors’ interests and to maintain financial stability.In the study of this topic, this paper has two main innovations. Firstly, according to the loanable funds theory, the paper uses international data to establish panel data model to analyze the impact of the deposit rate liberalization on bank deposit rate. Secondly, based on international experiences, this paper analyzes the financial statements of China’s major commercial banks to come to the impact of the deposit rate liberalization on the profitability and risk of commercial banks.