| Interest rate liberalization is an important content of China’s reform ofthe financial system, and the strategic plan of China’s economictransformation in the critical period. Since1996, China began to carry outthe attempt to interest rate liberalization.So far, China has already madesomesubstantial progress in liberalizing its financial markets, andespecially its interest rates. However, there still remains the floor on banklending rates and a ceiling on deposit rates regulated by the central bank.Our current interest rate controls, in fact, ensure a certain deposit andloan spreads for the commercial banks. With the deepening of the interestrate liberalization, this will bring a big challengeto the commercial banks.In addition, interest rate liberalization will also have some other importantimpact onmany aspects of the commercial banks, including internal andexternal environment, management decision, the facing risk, performanceand so on.This article will focus on thebackground of the implementation of theinterest rate liberalization reform in China, using a theoretical model,andempirical data to explore the impact of China’s interest rate liberalizationon the behavior of commercial banks. The simulation results show that theinterest rate liberalization will lead to higher market interest rates, higherdeposits amount, lower loan amount. Themarket concentration of thedeposit market will decline, while the loan market has not changed much.Smaller banks, in particular, benefit from the interest rate liberalization. Byopening this deposit rates competitive channel, small banks can attractmore deposits, and expand their business,while large banks reduce theamount of their deposits because of the rise in interest rates. In the face ofincreased competition after the interest rate liberalization,the narrowerspread betweendeposit and loan decreases the bank profits generally, butthe banking system remains sound since the profitability of banks does notdecrease. |
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