The ratio of the deposit reserve required by the central bank to its total deposit is the deposit reserve ratio. By adjusting the deposit reserve ratio, the central bank can influence the credit expansion ability of financial institutions, thus indirectly regulating the money supply. The statutory deposit reserve ratio is an important part of the deposit reserve system.
Deposit reserve ratio (RRR)
Financial institutions must deposit part of their deposits in the central bank, which is called deposit reserve; The ratio of deposit reserve to total deposits of financial institutions is called deposit reserve ratio.
China's deposit reserve system is based on 1984. According to the needs of macro-control, China's deposit reserve ratio has been adjusted three times since 1998, once from 13% to 8% in March of 1 1999.
2) Effect and purpose of upward adjustment
The People's Bank of China announced that after raising the deposit reserve ratio by 0.5 percentage point from August 15, 2006, financial institutions will reduce the available funds by about 1 1000 billion yuan at one time. At present, the balance of deposit reserve and excess deposit reserve of financial institutions in the People's Bank of China exceeds 2 trillion yuan, and the highly liquid assets such as government bonds, financial bonds and central bank bills are more than 3 trillion yuan. After raising the deposit reserve ratio, commercial banks will still maintain a normal level of payment and settlement, and have the ability to steadily increase loans. Raising the deposit reserve ratio will not affect the economic life of residents.
The central bank said that while the national economy continued to grow rapidly, consumer demand grew steadily, the income of urban and rural residents increased steadily, foreign trade grew strongly, and fiscal revenue increased substantially, there were still problems such as further expansion of investment demand, rapid growth of money and credit, and increased inflationary pressure in economic operation. Excessive growth of money and credit will lead to inflation or asset price bubbles, which may form new non-performing loans of banks and accumulate financial risks. The deposit reserve ratio is raised by 0.5 percentage points, mainly to prevent the excessive growth of the total amount of money and credit and maintain the steady, rapid and healthy development of China's national economy.
The influence and function of deposit reserve system in financial regulation and control has recently become a topic of concern in the industry. The so-called deposit reserve refers to the part that financial institutions deposit their relevant deposits and liabilities with the central bank in accordance with regulations.
Deposit reserve originally originated from ensuring commercial banks to pay customers' withdrawals, and then gradually became a capital settlement function, and later developed into a monetary policy tool. In recent twenty years, in some countries, such as Britain and Canada, the deposit reserve ratio is zero and the deposit reserve system has been weakened. However, in other countries, such as the United States, Japan, euro zone countries and many developing countries, the deposit reserve system is still a basic monetary policy system, which plays an important role in controlling the amount of money and credit, regulating the liquidity and interest rate in the money market, promoting the stable operation of financial institutions, and limiting currency substitution and capital inflow and outflow.
What role does the deposit reserve system play in financial supervision and stability in China? The trend of China's deposit reserve system is worth discussing.
Changes in the role of deposit reserve in monetary policy regulation in recent years
(1) The deposit reserve has changed from a monetary policy control tool to a control basis. As a monetary policy tool, deposit reserve has limitations: First, the adjustment of reserve ratio has a great impact on the operation of financial institutions, and the change of reserve ratio requires banks to readjust their asset portfolios, but it is difficult for financial institutions to complete it in a short time. If the market is underdeveloped, the excess reserves will be unevenly distributed among financial institutions, and the impact will be even greater. Second, a higher reserve ratio will reduce the proportion of financial institutions using funds through market channels. Moreover, if the statutory reserve is frequently adjusted, banks will tend to maintain a higher excess reserve and further reduce the proportion of available funds. Third, because most countries do not pay interest on reserve deposits, reserve, as a tax, is easy to cause financial institutions and market financing peers to evade financial supervision and even become disintermediated.
Since the 1990s, the central banks of major industrial countries have successively determined the interest rate index as the intermediary target of monetary policy regulation. Central banks adjust the benchmark interest rate and the change of benchmark interest rate level through monetary policy operation, and influence various interest rate changes in financial markets through mechanisms such as interest rate risk structure and term structure, thus affecting financial operation and economic operation. With the trend of monetary policy control focusing on price control, emphasizing the fine operation of pre-adjustment and fine-tuning, the monetary policy control method relying solely on adjusting the deposit reserve ratio is less and less used. The adjustment of deposit reserve system and deposit reserve ratio is more from the perspective of coordination with the implementation of other financial systems and the use of other monetary policy tools. The deposit reserve system has gradually evolved into a basic system to limit the growth of money supply and enhance the effectiveness and sensitivity of open market operation and interest rate adjustment.
Most national central banks that adopt interest rate regulation take money market interbank lending rate as the benchmark interest rate, and their monetary policy operation is to determine and maintain the target level of the benchmark interest rate. Therefore, the central bank must strictly control the supply of bank reserves and short-term interbank funds, and reasonably foresee the demand for bank reserves and interbank funds, and then adjust liquidity and market interest rates through open market operations. Maintaining a stable and predictable statutory reserve is conducive to ensuring the smooth operation of the open market, avoiding large fluctuations in the money market, leaving a structural gap for commercial banks' demand for funds from the central bank, thus enhancing the central bank's ability to adjust interest rates in the money market.
In this case, the central bank should set a moderate minimum deposit reserve ratio. Because the deposit reserve is used to meet the dual needs of reserve requirements and payment, only when the reserve requirements are kept at an adequate level and the statutory reserve requirements exceed the liquidation reserve requirements will a predictable liquidity gap be formed. Otherwise, if the liquidation demand often exceeds the reserve requirement, the reserve requirement will fluctuate, which will increase the difficulty of forecasting the reserve requirement and the complexity of policy implementation.
(2) Changes and impacts of interest rate on reserve deposits. Deposit reserve is an asset that commercial banks are forced by law to deposit in the central bank. The scope of application of the deposit reserve system, the level of the deposit reserve ratio and whether to pay the interest on the reserve deposit will all affect the operating costs of financial institutions.
Some countries pay interest on reserve deposits, while many other countries do not. Failure to pay interest on reserve deposits can cause problems. In this case, the opportunity cost of reserve is mostly passed on to customers by banks with high-interest loans or low-interest deposits, which will prompt financial financiers to try their best to avoid the banking system and financial institutions to innovate products to avoid reserve requirements, which will not be conducive to competition between banks and other financial institutions, nor to quantifying the efficiency of monetary policy regulation. For a long time, the central banks of some countries, including the Federal Reserve, have been considering paying interest to statutory reserve deposits, but no progress has been made so far because it involves many departments.
Most countries do not pay interest on excess reserve deposits, otherwise commercial banks may actively deposit excess reserves in the central bank, making the supply and demand of base money unpredictable, which is not conducive to the accurate regulation of base money and money supply by the central bank. In countries that pay interest for excess reserve deposits, reducing the interest rate of excess reserve deposits will help promote money market transactions and enhance the sensitivity of financial institutions to monetary policy operations.
Evolution and Innovation of China's Deposit Reserve System
From 65438 to 0984, the People's Bank of China established the deposit reserve system. In the past 20 years, the deposit reserve ratio has undergone many adjustments.
Before 1998, reserve deposits cannot be used for payment and liquidation, and financial institutions need to open reserve deposit accounts in the People's Bank of China for liquidation. 1998 the people's bank of China reformed the deposit reserve system and merged the statutory reserve deposits and reserve deposits of financial institutions into the subject of "reserve deposits". The statutory deposit reserve ratio will be reduced from 13% to 8%, and the total amount and distribution of the excess part of the reserve deposit account will be decided by financial institutions themselves. From 65438 to 0999, the deposit reserve ratio was further lowered to 6%. In 2003 and 2004, the People's Bank of China raised the deposit reserve ratio to 7.5% twice in order to hedge foreign exchange holdings and moderately control the credit expansion of financial institutions.
China's deposit reserve system is applicable to all financial institutions that absorb public deposits or liabilities and issue loans. These financial institutions have formed a creditor-debtor relationship with their customers, rather than an agency or investment relationship. In recent years, product innovation of financial institutions has accelerated, and which innovative products to apply reserve requirements is related to the effectiveness and fairness of monetary policy regulation. At present, under the background of improving financial services, encouraging direct financing and reducing the pressure of indirect financing, commercial banks should be encouraged to carry out business and product innovation, such as issuing financial bonds and starting agency financing business. However, from the perspective of deposit reserve management, the deposit reserve system cannot be applied just because there is no deposit in the debt business of commercial banks. The deposit reserve system should be considered for bonds issued by commercial banks to the public or other products that form the relationship between creditor's rights and debts. Under the current situation of financial institution reform and financial product innovation in China, it is very important to correctly grasp the scope of application of deposit reserve. On the one hand, it is conducive to enhancing the effectiveness and fairness of monetary policy, on the other hand, it is also conducive to promoting financial institutions to standardize their business and product innovation and improve financial services.
At present, China pays interest on both statutory reserve deposits and excess reserve deposits, but the interest rate on excess reserve deposits tends to decline. As mentioned above, financial institutions can adjust excess reserve deposits by paying interest on excess reserve deposits, thus absorbing excessive liquidity, which is not conducive to the central bank's forecast of money market liquidity. Reducing the interest rate of excess reserve deposits can encourage financial institutions to further strengthen liquidity management and adjust the transaction interest rate in the money market to adapt to the excess and deficiency of liquidity and enhance their sensitivity to monetary policy operation.
In 2004, the People's Bank of China began to implement the differential deposit reserve ratio system. The deposit reserve ratio applicable to financial institutions is linked to its capital adequacy ratio, asset quality and other indicators. The lower the capital adequacy ratio of financial institutions and the higher the non-performing loan ratio, the higher the applicable deposit reserve ratio; On the contrary, the lower. The differential deposit reserve ratio system integrates the relevant ideas of deposit reserve system, capital adequacy ratio requirement and deposit insurance system, and embodies the comprehensive consideration and arrangement of China's monetary policy and financial stability.
Historically, one of the purposes of establishing deposit reserve system, deposit insurance system and capital adequacy ratio requirements is to prevent financial risks. Deposit reserve was originally used to protect bank payments and prevent liquidity risks, and later developed into a monetary policy tool. The requirement of capital adequacy ratio and the practice of deposit insurance system charging different premiums according to the rating of financial institutions have the function of restraining excessive credit expansion of financial institutions, prompting financial institutions to operate according to the principles of quality, efficiency and market, which is conducive to forming a market foundation for financial operation and monetary policy regulation.