The Impact Of Interest Rate Mercerization On The City Commercial Banks

China launched its own interest rate mercerization reform in1996. From then on, China’s banking reform and interest rate mercerization process continue to move forward. With the recent central bank deposit rate for the first time to relax floating ceiling1.1times the benchmark interest rate, marking China’s market-oriented interest rate reform battle has begun. In this context, on the one hand, China’s banking sector generally felt enormous pressure of the interest rate mercerization process, especially city commercial banks whose total assets are relatively small. Now China’s city commercial banks are not only facing fierce competition from traditional business in the market, but also resisting the enormous impact on the interest rate mercerization process. On the other hand, interest rate mercerization process also brings opportunities for development. By understanding the operation of central bank interest rates macroeconomic background, ascertaining the characteristics of the market interest rate, identifying the positive effort of the interest rate mercerization process, avoiding the management hazard, establishing and improving management hierarchy, inventing new business model of city commercial banks, city commercial banks will be able to enhance the competitiveness of the business, eliminate the limitations in the future development of city commercial bank services and business, also benefit to the long-term stable development of the city commercial banks.Firstly, after collating and summarizing the research results of domestic and foreign scholars, this article did a theoretical analysis on how the interest rate mercerization process influenced China’s city commercial banks using SWOT model. The results show that, as an important part of China’s banking industry of the city commercial banks in the interest rate mercerization process will encounter not only interest rate risk, liquidity risk, credit risk, competitive pressures, the traditional business structure and customer structure transition risk and a series of risks as normal commercial banks do, but also face more severe challenges probably because of lack of funding and talent pool, over-reliance on large or medium-sized corporate customers and other reasons. However, the city commercial banks in the process of interest rate mercerization still have some advantages, for example, local information resources, close ties to small businesses, flat management infrastructure and quick transition speed etc. Long as they can take their advantages, strive to improve their management and operation standards, actively carry out business and financial product innovation, they’ll have the opportunity that interest rate mercerization gives, which bring themselves into a more mature and stable development period.Secondly, this paper did a quantitative analysis of the interest rate mercerization’s short term impact on China’s city commercial banks by taking advantage of publicly available data on interest rates after the introduction of market-oriented policies. The results show that interest rate mercerization has subtle effects on small joint-stock commercial banks. Commercial banks take great pressure of deposits competition. Due to the deposit rate floating mechanism, commercial banks deposit interest rates go up as a trend, which greatly reduces the bargaining power of deposits. In other words, after interest rate mercerization, the competition in the banking sector becomes fiercer, interest rate risk increases, city commercial banks’traditional business structure and customer structure changes, the traditional business is facing great challenges.Thirdly, in order to reflect more realistically the interest rate mercerization impact of city commercial banks, the paper selected a representative of the city commercial banks, AB Bank, to conduct in-depth case studies.Finally, the paper proposes the following policy recommendations:first, we must learn from foreign advanced experiences; second is to reduce the operating costs of commercial banks; third, increase innovation; fourth is to strengthen interest rate risk management; fifth, actively introduce and nurture talent, pay more attention to basic research to promote financial innovation.