The Effects Of Interest Rate Liberalization On Our Commercial Banks’ Operations-using American Experiences For Reference

With the elimination of limits on banks’lending rates at July 20th,2013 and the gradual liberalization of deposit interest rates, China’s interest rate liberalization has stepped into the crucial stage, making commercial banks’profit earning model in which banks’profits mainly come from deposit and loan spreads hard to continue. As a result, it is very important to learn the impacts of interest rate liberalization on commercial banks operations and study the methods commercial banks can adopt to meet the challenges of interest rate liberalization.In this paper, the impacts of interest rate liberalization on Chinese commercial banks’operations were studied firstly. As a result, we found that interest rate liberalization will increase loan and deposit rates, decrease deposit and loan spreads; make the proposition of non-interest income increase, improve the proposition of riskier loans and so on. Besides, we also made quantitative analysis with the interest rate sensitivity gap (IRSG) model and we found that when the yield rate of IRSA (interest rate sensitive assets) rose in the same rate (1%) with the cost of IRSL (interest rate sensitive liabilities), the net interest income of commercial banks would decrease more than 3%. When the yield rate of IRSA and the cost of IRSL rose in different rates, commercial banks’net income would suffer more, about 25% to 35% decrease under mild pressure.Through making research on the methods American commercial banks adopted to meet the challenges of interest rate liberalization and the in-depth study of the experiences of WELLS FARGO, we thought that our commercial banks can meet the challenges of interest rate liberalization through methods as follows. Attract deposits with financial innovation; develop the business of SMEs lending; improve the proportion of non-interest income; take cross-selling strategy and so on.