Analysis Of Commercial Bank Deposit Contracts

In terms of modern Economics, every market transaction can be viewed as a contract. Therefore, all the activities and institutional arrangements in the financial sector can be regarded as choices, portfolio and implementation of a series of financial contracts. Deposits are the basis for the bank to survive and develop, and is an important component in the bank's balance sheet. From the point of view of Contract Economics, bank deposit is a contract created by the bank, and the customer signed with bank; which customer has the ownership and can freely dispose of, but temporarily abandoning the right to use the cash (or income) for the reason of the safety concern, or precautionary demand or facilitating payments, or profits, or other purposes; the customer can purchase it from bank or received it by using their own credit (generally require appropriate guarantee).After China's accession to the WTO, and the deepening of the financial sector to the outside world, the competition among domestic banks, and the competition between domestic banks and foreign-invested banks will become increasingly intensified. Deposits are the important area for competition. Nowadays, China still put limitation on the ceiling of interest rate, Chinese and foreign-invested banks in the competition have never taken the initiative to raise the interest level. After the interest rate is fully market-oriented, the excellent design of deposit contract in foreign banks, and the high quality of related services, can make the foreign-invested banks obtain profits through differential pricing of products and services. But the domestic banks have been the government sectors for a long time, and used to perform government functions, so the financial products is very easy to sale in the past, the current deposit products offered by the domestic bank can not achieve symmetrical incentive and restraint mechanisms, which will disadvantage the domestic banks in the competition. The accumulation of national wealth, the changes in consumer attitudes, and the increased investment channels, which will exert profound influence on the customers'tendency to deposit their money.On the other hand, the commercial bank deposit contracts'"inherent instability" can easily lead to bank runs, which will lead to the economic crisis. At present, deposit is the main part of the debt structure in China's commercial banks, and lack of stability; meanwhile due to historical and institutional reasons, the domestic banks, especially the state-owned commercial banks had the poor quality of assets, high rate of poor-performing loans, severe shortage of capital, which has accumulated a large number of risk in the China's banking industry. Under the situation without the deposit insurance system, if a bank run occurs, the bank run would easily spread to the entire banking industry, which will lead to a financial crisis and its impact will be disastrous.Therefore, China's commercial banks must improve the design of deposit contracts, create new type of deposit products, to meet the individual needs of different customers; meanwhile should improve the stability of deposits and prevent the occurrence of bank runs. This paper begins with analyzing of the contractual nature of the deposits, then goes to analyze the pricing of deposit contracts and an important characteristic (instability) of deposit contracts; finally take the design and implementation of deposit contracts in the United States as a reference, to analyze the deposit contracts in the domestic banks, and put forward the improvement ideas.In addition to the contents, this paper is divided into four parts:The first chapter is the theoretical basis of the text, this chapter focuses on the definition of commercial bank deposits from the point view of Contract Economics, then analyzing the nature and classification of deposit contracts; the second chapter explains the component of deposit contracts'cost, and the principle, the method of deposit contracts pricing; in chapter three, with the introduction of DD (1983) model, analyze the instability of the deposit contract and improvement method; in the fourth chapter, compared with the design of deposit contract and deposit insurance system in the United States, in view of the current situation of domestic deposit contracts and the existing problems, present my improvement ideas.