A Study On The Macro - Prudential Function Of China 's Statutory Deposit Reserve Policy

The international financial crisis makes the macro-prudential regulation emerge to the public, becoming the focus of regulators around the world. Because of the imperfect of market mechanism and the immature of policy, there are still many obstacles in the implementation of macro-prudential regulation in our country. Especially since the 2008 financial crisis, The People’s Bank of China has adjusted the legal deposit reserve rate for many times in order to curb credit growth and anchor the stability of their financial systems. Because the central bank limit the use of macro-prudential tools such as dynamics of the loan loss reserve and the counter-cyclical capital requirements, but increase the use of deposit reserve. The deposit reserve as macro-prudential tools to curb credit growth and prevent the effectiveness of systemic risk is particularly important.To test and verify the macro-prudential function of deposit reserve policy, in theory, the effect of deposit reserve policy can be analyzed in a simple framework using two extreme scenarios that take into account banks’market power. The first is one in which the loan market is competitive and the bank has market power setting deposit rates. In the second one, banks face a perfectly competitive deposit market, but have market power setting loan rates. In the empirical, this article uses two complementary methods. First, the event analysis shows the deposit reserve policy has short and mild effect to curb credit growth. Meanwhile, using panel data and the VAR model, combining with the quarterly data of 2007-2014 of the deposit reserve of 14 banks to analyze the credit growth. And then analyze the deposit reserve of the whole banking system to credit growth with the monthly data. The empirical results show that the deposit reserve policy can curb credit growth and reduce systemic risk as a counter-cyclical tool. Finally, relevant policy suggestions from the regulation of the credit mechanism and the adjustment of difference deposit reserve policy are proposed.