A Study On Interest Rate Liberalization Of China’s Commercial Banks

Since the reform and opening up, China insists on the market orientation, deepen the financial system reform continusely.Advance the interest rate liberalization steadily is the key work of deepening the financial system reform, and has been included in the "The Twelfth Five-Year Plan", since1996,the people’s bank of China started the interest rate liberalization from interbank money market by the idea of " First foreign currency, Then RMB; First loan, Then deposit; First long term、large amount, Then short term、small amount". In2012, RMB deposit and loan interest rate liberalization made a significant progress, interest rate limit is loosed. In the twelfth Five-year period, the interest rate liberalization may make a more significant process. Research on interest rate liberalization is important to solve the problem in the economic transition, avoid stagflation and improve the economic development level. This dissertation will analyze domestic and foreign interest rate liberalization progress and experience, point out the condition and influence factor of reform, analyse the influence to China’s commercial banks, and forecast the new interest rate running system. This dissertation is divided into five chapters; the main content is as follows.Chapter1is introduction. Firstly it explains the background and significance of the topic, then it sorts out the related study systematically and comments on them, thirdly it introduces the research method, lastly it shows the innovation and disadvantage of this dissertation.Chapter2analyses the necessary of interest rate liberalization. It addresses the meaning of interest rate and interest rate liberalization. And it analyses that interest rate liberalization is the need of meeting the development of economic system, the need of training the commercial banks’pricing ability, the need of respecting the enterprise and individual’s right, the need of improving the financial service and macro-control. Then it bases in the model of financial restrain, onsides the separateness feature of Chinese economy, and create the China interest rate liberalization model. The model shows that if the separate markets mix together, the new ratio of income to capital may be higher than before, and then it will make the economy development to achieve a higher level. But it is not an inevitable result to improve efficience. This means the risk in interest rate liberalization process. Lastly, it reviews the history of the economic system reform and interest rate liberalization in China, presents the problem that China will meet and solve.Chapter3compares the international cases. It analyses the developed country’s experience such as America, Japan and the Emerging economies’experience such as Russia, Inida. Then it analyses the five condition to insure the reform success and enlighten to China. Chapter4research the suitable path of China interest rate liberalization. It figure that China should choose a gradual、double-track path, analyses deeply the meaning and logic of such path, and proposes the four kind of ability that should be concerned in the reform. Then in order to improve the scientificalness of determination, it tries to build a determination model in fuzzy mathematics and expert evaluating method.Chapter5analyse the influence of interest rate liberalization and suitable treatment in commercial banks. It analyses the influence from the respects of the falling of interest rate spread, interest rate risk management, adverse selection and moral hazard. Then through the banks competition model and the real data of banks’ deposit and loan, it tests the change of banks’market share. It analyses the gap between China’s commercial banks and international advanced banks. Then it proposes that canceling all the interest rate limit is not finish. The periodic finish is building a new mechanism of interest rate running. The new mechanism is based on the New Capital Accord, interacts with oversea market, treat quality and efficiency as its heart. In the new mechanism, bank is the center, bank distributes resources and determines strategy according to RAROC. The capital limit will replace interest rate limit, become the main measure for government managing the banks and whole economy.Lastly it forecasts that the new interest rate running mechanism will adjust continusely to meet the changing regulatory climate. So this dissertation suggests that China’s commercial banks should improve their pricing ability and Self-discipline ability, allocate resourses more efficiently based on limited capital allocation.After the above research, this dissertation concludes that interest rate liberalization is nessecery to economic transformation for China, but the reform is risky. The reform process should develop the four kind of ability (bank’s ability, enteiprise’s ability, government’s ability, market’s ability), meet the five condition (stable macro economy, sound supervision system, scientific management system of bank, sound deposit insurance system, modern market economic system). And the reform should build a determination model to make sure the determination scientific. China’s commercial banks’pricing ability should be improved. After the interest rate liberalization, China should build a new supervision system based on the New Capital Accord, instead the interest rate limit by a marketable way of capital limit, prompt China’s commercial banks to allocate resourses more efficiently based on limited capital allocation.