Banks must build their own firewalls to rectify structural deposit disorder

  Spotlight

  Strengthen the "firewall" of structured deposits, avoid the indifference of some bank managers and staff, and do not put risk control at the top of structured deposit management.

  After the Beijing Banking and Insurance Regulatory Bureau issued a document to rectify the structured deposit business, the Banking and Insurance Regulatory Bureau in many places is planning to introduce rectification measures, and the Banking and Insurance Regulatory Bureau has issued business risk warnings to banks that have grown their structural deposits too fast. Banking industry insiders expect that the regulatory authorities will vigorously optimize the deposit structure and promote the return of structured deposits to the essence of the business.

  Structured deposits refer to investors depositing legally held RMB or foreign currency funds in a bank, and the bank embeds financial derivatives on the basis of ordinary deposits (including but not limited to forwards, swaps, options or futures, etc.) ,Financial products with certain risks that link investors’ income with interest rates, exchange rates, stock prices, commodity prices, credits, indices and other financial or non-financial objects. In other words, structural deposits are different from ordinary deposits. By linking with fluctuations in interest rates, exchange rates, and indices, depositors can obtain higher returns on the basis of taking certain risks.

  The excessively rapid growth of structured deposits first brought about the phenomenon of idle funds. On the basis of maintaining a certain amount of deposits, the proportion of structural deposits will continue to rise, which will squeeze the flow of funds to the real economy. In particular, the growth of structured deposits since 2020 is mainly due to the promotion of public deposits. During the epidemic period, some enterprises obtained bank loans while buying arbitrage for wealth management, structured deposits, etc., and even illegally entered restricted areas such as the stock market and real estate. As we all know, in order to help companies cope with the impact of the epidemic, financial institutions have provided a considerable degree of interest rate concessions and other support for corporate loans, the original intention is to support the real economy to maintain a stable situation. If an enterprise that has obtained credit uses funds for arbitrage, it will not only be unfair to other enterprises that have not received preferential credit, but it may also cause multiple risks.

  First, as policies tighten, the structured deposit investment channels and quotas will be limited, and this rapid change will directly affect its earnings. Second, banks have the right to terminate structured deposit products prematurely but excluding obligations, which will also cause customers, including companies, to fail to obtain the expected rate of return.

  The current high structured deposits also pose risks to banks. After all, some banks obtain structured deposits through high interest rates, which increases their debt costs. If the bank sells the structured deposit business without pre-explaining its non-rigid redemption risks to customers who lack financial management knowledge, it will also trigger a series of disputes and cause the bank's credit risk.

  Insufficient risk disclosure, asymmetric information, and some banks’ unregulated operations such as high-profit return discounts based on the reserve, will allow ordinary customers who are increasingly unaware to participate, which will encourage unrealistic expectations of high interest rates. While the scale of structured deposits has expanded dramatically, banks have fallen into a vicious competition trend. The influx of large amounts of money has forced banks to increase financial investment. Once the investment market fluctuates, it will form a chain reaction and bring about various contradictions.

  Therefore, on the one hand, the regulatory authorities should strengthen dynamic supervision of structured deposits, and conduct investigations and rectification at any time according to market changes. On the other hand, banks should incorporate structured deposits into a comprehensive risk management system and do internal precautions, including product access management, sales management, investment management, valuation accounting, and information disclosure. The supervisory department should also work with the bank to make corresponding detailed standards and strengthen the implementation of the bank. The Banking and Insurance Regulatory Commission issued a similar notice last year, so this time it is necessary to conduct a comprehensive survey on the implementation of various main responsibilities by banks, to account for the banks that have not been implemented, and to impose corresponding punishment on the relevant responsible persons, thereby strengthening the structural The “firewall” of deposits avoids the indifference of some bank managers and staff, and does not place risk control at the top of structural deposit management.

  □Bi Ge (financial commentator)