The Last-Minute Rush for Deposits by Small Banks Sample Clauses

The Last-Minute Rush for Deposits by Small Banks. As M2 growth began to slow down in late 2009, the pressure of unexpected deposit shortfalls against the LDR ceiling began to build up, that is, banks were more vul- nerable to deposit withdrawal risks.18 While the LDR regulation applied to all banks, small banks had disadvantages in attracting additional deposits to meet shortfalls, es- pecially around the time when the LDR was closely monitored by the PBC at the end of the quarter. In fact, the government uses the phrase “the last-minute rush (chong- shidian in Chinese)” to refer to the last-minute actions taken by banks to pay high prices to artificially increase temporary deposits in order to recoup deposit shortfalls when the monitoring time is near.19 In practice, the last-minute rush was more relevant to small banks than large banks. State-owned large banks, with branches in almost every corner of the country and with implicit guarantees from the central government, had advantages of attract- ing household deposits on a broad basis at low costs. Moreover, because nonfinancial SOEs as well as nonfinancial large non-SOE firms had easy and preferential access to loans made by the large banks (Xxxxx et al., 2016), these firms in return were willing to place additional deposits in large banks when requested by these banks. The large banks’ long-standing customer relationships with a broad base of firms and 18For detailed discussions of such risks, see the PBC’s various “Financial Stability Reports” pub- lished in the early 2010s. 19See the proclamation “Number 236 Notice on Strengthening Commercial Banks’ Deposit Stabil- ity Management” jointly announced on 12 September 2014 by the CBRC, the Ministry of Finance, and the PBC. households enabled them to weather deposit shortages without much cost. These advantages were hardly enjoyed by small banks, which often had relation- ships with only local and small firms and whose customer base for deposits was not nearly as broad and stable. As a result, when the deposit monitoring time came near, small banks had to attract additional deposits by either manipulating the timing of expirations of the WMP products with high prices or offering a much higher deposit rate than the legal ceiling imposed by the PBC. The twin problem of deposit shortfalls and high costs for small banks to attract deposits, as well as other related issues, has been discussed extensively in various Chinese financial newspapers and some Chinese academic articles (Ba et al., 2013, for example).