What Is Rate Regulation?

Interest rate control is a relevant system regulation that the state manages the interest rate on the financial market in order to regulate the economic operation. It is a very important content of interest rate policy. It is related to whether the interest rate economic leverage is exerted or not. Different countries have implemented different regulations on interest rates according to different situations in different periods. For example, in the 1933 Banking Act of the United States, there was the "No. 2 Rule" that restricted member banks from paying interest rates on non-scheduled and savings deposits. In the early 18th century, Britain formed a centralized interest rate system that uses the Bank of England's discount rate as the central interest rate and uses the inter-bank interest rate cartel agreement to make its deposit and loan rates synchronously change with the Bank of England's discount rate. ^[1]

Interest rate control

There are two main forms of interest rate control:

One is individual regulation, that is, only

In summary, interest rate control has the following disadvantages:

1. Distortion of interest burden and income.

The distinctive feature of government interest rate control is that

The theoretical debate over whether interest rates should be regulated or determined by the market stems from the divergence of interest rate determination theories.

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Notice of the People's Bank of China on Further Promoting the Reform of the Marketization of Interest Rates

People's Bank of China Shanghai Headquarters, branches, business management departments, provincial capital (capital) city center branches, Shenzhen city center branches, state-owned commercial banks, joint-stock commercial banks, China Post Savings Bank, and financial asset management companies: ^[2]

In order to further promote the reform of interest rate liberalization, with the approval of the State Council, the People's Bank of China has decided to comprehensively liberalize the control of interest rates on loans to financial institutions from July 20, 2013. The relevant matters are notified as follows:

I. Fully liberalizing the control of loan interest rates of financial institutions

The lower limit of 0.7 times the loan interest rate of financial institutions shall be abolished, and financial institutions shall independently determine the level of loan interest rates in accordance with commercial principles. The floating range of personal housing loan interest rates will not be adjusted, and the original range will remain unchanged. Differentiated housing credit policies will continue to be strictly implemented.

Abolition of the discount rate control on bills and change the way in which the discount rate is determined based on the rediscount rate shall be determined by financial institutions.

The 2.3% ceiling on the loan interest rate of rural credit cooperatives will be abolished, and the rural credit cooperatives will independently determine the loan interest rate to customers based on commercial principles.

2. Financial institutions should actively adapt to the market-based pricing method of loan interest rates, based on market supply and demand, and reasonably determine loan interest rates based on risk factors such as maturity and credit. Improve the construction of pricing mechanism, improve the level of differentiated services, handle contract relationships securely, and ensure the normal release of loans. Strengthen financial hard constraints and interest rate risk management to ensure effective implementation of internal management measures. Relevant system measures shall be reported to the People's Bank of China for record.

3. The People's Bank of China Shanghai Headquarters, branches (business management department), provincial capital (capital) city center sub-branch, and Shenzhen central sub-branch shall immediately forward this notice to city (rural) commercial banks, rural cooperative banks, and rural credit cooperatives in their jurisdictions. Financial institutions such as foreign banks that operate RMB deposits and loans shall provide relevant guidance.

4. Responses to all aspects and new situations and issues that have emerged after the deregulation of loan interest rates have been comprehensively addressed and reported to the head office of the People's Bank of China in a timely manner.

People's Bank of China

July 19, 2013