Xu Yili: When China Has Also Embarked On The Road Of Deposit Insurance.

The reason why Chinese people are strange to this is because of institutional reasons. Before that, China did not actually have no so-called deposit insurance system. Although the explicit system did not appear, there was actually another set of "hidden systems", that is, all savings deposits that could not be paid by all banking institutions were paid by the government. That is to say, deposits in China are the safest in the world. The governments of other countries in the world are not as tough as China, so their banks are at risk of bankruptcy. Especially after the marketization of interest rates, the differences between banks are expanding. Some of them are very small, especially those small banks. Once the risk comes, a run will happen immediately. If the bank runs, then the country will be finished. Therefore, the establishment of a complete explicit deposit insurance system in these countries can prevent run.

Take the most mature America as an example. When facing economic risks, American banks will go bankrupt at any time, especially some small banks. Even after the deposit insurance system is bankrupt, the depositor's principal is not protected by unlimited liability. Under the US deposit insurance system, only a single account can be fully paid under 100 thousand dollars. After the 2008 crisis, the figure increased to $250 thousand.

Unlike the deposit insurance system that we all imagine, it means that for our Chinese people, after the real deposit insurance system is implemented, bank deposits are even more unsafe. When we Chinese people used to the bottom line of the government, they were the safest savings in the world. After the implementation of the deposit insurance system, only a certain amount of savings below the limit is insurance. The amount of savings that is too high may be dangerous even the principal.

As for the system, it may not feel very good for savers, but for China as a whole, the opposite is true. It is imperative for us to start such a way. It is urgent to delay. If we do not take this step, we will have problems.

Or take the United States as an example. For large US funds, deposits are risk assets with principal risks. This is totally different from the traditional understanding of deposits in China's banking system and deposits in China. This difference determines that the bank is the outflow of the bank in the crisis state. In the crisis state or the asset price down, the banking system is in the form of deposit return. Under normal conditions, large funds will not put the funds in the bank to avoid the risk of the bank's bankruptcy, but invest heavily in the bond market. This is why the developed market bond market and the direct financing market in Europe and the United States are very important.

This is the biggest difference between China and Europe and the United States in the financial system. In the face of risk, all funds in the Chinese market, no matter how large, can be returned to the bank's embrace, without risk. In the United States or Europe, Japan and other markets, the banking system can not provide capital for the real risks, and the funds can only go to the national debt market. As you can imagine, why is it sometimes true that the US Treasury bonds are real negative interest rates? This kind of national debt can be made. In fact, the funds are sold at the cost of interest to exchange for the security of the principal. Even if it is possible to face the risk of monetization of debt, at least, after the maturity of the national debt, it can be paid, because it is the government's payment.

So there are too many loopholes in China's financial system. The root cause is the dominance of banks. The most fundamental problem is that banks will not go bankrupt. Bank failure can not be achieved, and the development of other non banking financial markets can not achieve real prosperity.

Under the unique banking system, the expansion of bank assets has a strong monetary multiplier effect, and the great development of the banking industry has led to an unsustainable monetary issuance mechanism in China. Even though the current deposit reserve ratio is as high as 20%, China's currency multiplier is still over 4. This indirect banking financing system has pushed China's M2 to more than 100 trillion yuan, becoming the world's largest. China's M2 is nearly 2 times that of GDP, which is rare in the world. What is even more frightening is that if we go on like this, China's M2 will definitely exceed 200 trillion in 10 years.

Why is China's M2 so high? We must think from China's financial system. How to reduce M2 and how to reduce the money multiplier? In fact, the essence is how to reduce the importance of banks. How to reduce the importance of banking is how to reduce the proportion of credit in the total amount of social financing. Only by implementing these can we conceive a M2 controllable future in the next ten years.

Of course, deposit insurance It is not simply for the sake of M2. Its biggest aim is to push interest rate marketization.

What is really interesting is that after the deposit insurance is launched, the interest rate liberalization of the deposit market will follow up. What kind of earth shaking changes will China's financial system be?

To guess such a change, we should first understand the background of the spread of China's banking system. We all know that from 1996 to 2010, the real time of real negative interest rates in China is very long. How can this be done? It is mainly for the purpose of taking care of the profitability of banks and allowing banks to absorb deposits at low cost, so the interest rate control is used to give the 3% interest rate of the banking system, so that the banking system can continuously provide "cheap capital" for the state-owned enterprises with more priority in obtaining funds, so China's real savings are mostly transformed into investment through state-owned enterprises. For small and medium sized enterprises hungry for capital, they are willing to bear higher capital costs, but they can not get bank funds.

In order to increase capital support for the real economy, interest rate liberalization is needed.

What you may not expect is that commercial banks are basically the beneficiaries of the control of the deposit rate cap, but in recent years, the financial market has developed rapidly. financial products Innovation has emerged one after another. There have been a group of extremely low risk and very high returns, especially the monster such as balance treasure, and the product of the rigid payment of trust. The commercial bank has turned victim from the beneficiary into a victim. To this end, commercial banks can only participate in more and more large-scale and deeper participation in the market competition of financial products which are not controlled by interest rates, and also launch their own bank financing products. At this time, the deposit rate will be controlled and the commercial banks will be put to death.

Commercial banks have also become victims in real life. What will happen to these commercial banks after the deposit interest rate is marketization? Raise interest rates and lower interest rates?

At present, there are two parallel interest rate systems in China. One is the interest rate system represented by the money market and the bond market. This part of the interest rate has basically been marketed. All kinds of financial products invested in this system are popular, attracting a large number of short-term capital inflows. Therefore, from this perspective, China's short end interest rate has partially realized marketization. But money can not derive money in this system. The other is the deposit and loan interest rate system of banks, of which 0.7 times the interest rate of loans has been more relaxed, but the deposit interest rate of 1.1 times to float further open space.

It can be assumed that once the deposit interest rate is released, it is necessary to raise the cost of capital of the financial institutions and urge the institutions to demand higher yields, thus pushing up the whole yield curve. But on the other hand, the expansion of the deposit interest rate will prompt the return of funds from the first system to the banking system, thereby deriving a new currency, which is conducive to loose liquidity and inhibiting the upward trend of the short end of the yield curve. So let's look at it in a comprehensive way. Rate of return The short end of the curve is difficult to predict because of the two positive and negative factors. However, the yield of the yield curve will increase and the yield curve will be steeper gradually.

At that time, banks may feel more and more aware that maintaining liquidity and preventing bankruptcy is more important than anything else. So long term savings are too precious. As for short-term deposits, we can look at the specific circumstances.

A lot of other systems will follow when banks move.

For example, for the stock market, this may not be a good thing. The decline of the stock market from 2009 to 2014 is not the time for the vigorous rise of the trust. The rigid trustee of the deformed trust has absorbed too much capital from the stock market. If the interest rate of bank deposits is raised, ha ha, for the time being, I don't know what will happen.

The second bigger impact may be some of the financial products such as trust and Yu Ebao. Over the past few years, these products have used bank deposit control and used high interest rates to absorb many bank deposits. Now that the deposit interest rate of banks is raised, the days of trust will be more and more sad.

The third impact is probably on bonds. Not to mention too much.

It seems that after the deposit insurance policy, the interest rate liberalization will be a great change in China's financial market.