The central bank's new means of offering a new way to induce the worry of arbitrage

On the night of December 27, 2014, the central Bank issued "circular No. 387" on matters relating to deposit reserve policy and interest rate management policy in relation to deposit size adjustment, and requested that deposits under the same interbank deposit be included in various deposits, including securities and settlement deposits absorbed by deposit-taking financial institutions, Bank non-deposit class storage, etc. "This means that the funds absorbed by the Money fund represented by the balance treasure will pay the deposit reserve." "The respondents admitted that this does not mean that their earnings will fall, because the document also stipulates that the reserve requirement for the deposit is temporarily zero, that is, there is no need to pay the reserve."

In disguised form, this is a new way for the central bank to sacrifice, while the arbitrage may also be accompanied by a general deposit into the interbank deposit.

How to convert the general deposit into the interbank deposit, how to realize the deposit arbitrage? "It's not a secret in the industry. "said one joint-stock Bank person.

Is this a sustainable practice? Guo Xin Securities believes that it is acceptable for interbank deposits to be up to 0.9% per cent higher than the same term general deposit. The current one-year interbank deposit rate of about 4.7%, one-year fixed interest rate of about 3.3%, spreads to 1.4%, which means that despite the industry has a non-payment advantage, but the current cost is still too high, the bank has no incentive to transfer funds to the same industry.

　Trigger arbitrage?

According to central bank No. 387, the simple point is that interbank deposits are included in the deposit statistics, but the deposit rate is zero, banks do not have to pay as much as 20% of the deposit reserve, thus dissolving the bond between the loan and deposit ratio, and the interest rate of interbank deposits follows the marketization principle, the interest rate is higher than the ordinary deposit. and is not subject to the benchmark interest rate and its 10% interval.

The conversion of general deposits into non-bank interbank deposits may be mainly in two ways, one is the customer's deposit, the first purchase of the products of the non-bank, then deposit in the name of the non-bank interbank deposit in the bank;

Arbitrage can also be achieved by means of a third-party approach, where a third party collects funds from investors by setting up a capital control scheme or other SPV (using funds originally deposited in a bank) and depositing them in banks in the form of higher-yielding interbank deposits. For banks, general deposits are reduced, interbank deposits increase, debt costs increase, and third-party channels and investors (former bank depositors) gain higher returns.

"The general deposit rate for individuals and companies is regulated, up to 20%, and interbank deposit rates are market-based, higher than general deposits." From a bank perspective, this shift can only raise the cost of debt, where is the benefits of hedging? Arbitrage may be from the perspective of the third party outside the bank's interests. "If banks take the initiative to convert general deposits into interbank deposit arbitrage of other banks by simply using the channel, this kind of on-the-table leverage directly increases the currency derivation factor through the deposit and loan method, thus affecting macro-control and regulation," said one state-owned interbank business unit. ”

Even third parties take advantage of the above spread space arbitrage and do not have long-term sustainability. "This is actually the model of the IMF, which diverts bank deposits with higher yields and then deposits the banks in the form of a negotiated deposit, nothing new." The regulation and adjustment of various deposits is to solve the problem that this kind of arbitrage mode diverts the general deposit from the pressure on the loan-to-credit ratio. "This model can only be short-term and unsustainable," said one banker. ”

Brian, director of the Banking Research Institute of the Chinese Academy of Social Sciences, argues that bank arbitrage space is limited. "At this point, the cost of this policy combination is lower, even if banks convert general deposits into interbank deposits, and banks do not make money because of the high cost of interbank funding, which actually has a small arbitrage space." "It has just been calculated that the cost of interbank deposits is 1.3%-1.4% higher than the general deposit rate, and that the cost of depositing a general deposit is 1.61%, and thus the spread of arbitrage is small."

Central bank's profound

The central bank clearly foresaw the so-called "loophole" and did not intend to make the "loophole" permanent. Therefore, article No. 387 emphasizes that "the above deposit shall be credited to the scope of the reserve deposit, the applicable reserve requirement rate is tentatively zero", although it is not expressly stated, but the signal transmitted is basically determined: the non-payment is only temporary.

"In fact, the inclusion of interbank deposits in general deposits has basically solved the problem of loan-to-deposit ratios, which are tentatively 0, and should also fully demonstrate that the central bank is fully aware of the current liquidity tensions." "These joint-stock bankers admit that the central bank also has a dilemma.

The dilemma is that the central bank does not want to pump water from the market in the face of current liquidity tensions. If smoked, it is bound to water hedging, quasi-or directional loose, hedge up a lot of trouble. Because of the different size of the banks, the general rule is not fair, if the orientation tool to deal with, but also faced with the problem of the mismatch of deadlines.

"But the interest rate management of interbank deposits, which incorporate general deposits, reveals a shattered glass taste." Insiders admit that although this part of the deposit into the general deposit, but the interest rate is the implementation of market-oriented interest rate, the original how, and now how. For example, the original insurance and the large-scale agreement between the banks, the interest rate is much higher than the general deposit limit, is now moved to the table, and is not subject to the benchmark interest rate and its upward 10% range.

So there are two sets of credit systems, different deposit allowances, and different interest rate management in the bank's form. In other words, the equivalent of the original as "concubine" table outside the trade "righting".

The "Off-the-table dual track" has become a "two-on-one", in effect the central Bank encourages financial institutions to carry out regulatory arbitrage directly on banks ' tables. It's very simple, changing the pattern. Convert general deposits into interbank deposits, where the interbank profits are earned and banks do not pay up to 20% of the deposit reserve. Then it is tantamount to reducing the reserve requirement ratio in disguise.

There is a view that the central bank's move will allow banks to turn a large number of off-sheet operations into the table, effectively curbing the size of shadow banks. For some time to come, the shadow banking business on the banks ' off-sheet business may soon shrink. On the other hand, the non-bank interbank deposit rate is higher than the general deposit, and the specific implementation is agreed by the parties themselves, which will make the interest rate floating more space. "From this point of view, this is also a covert interest rate marketization means, the impact is not limited to regulate liquidity." "The above-mentioned industry insiders admit.

For central banks, this is a way of institutional change, by adjusting the size of the deposit to include new forms of liability in the regulatory framework. Brian that by expanding the size of the deposit statistics, the future direct regulation of non-bank deposits, further improve the regulatory system. (Source: Huaxia times)

The central bank's new means of offering a new way to induce the worry of arbitrage