Source: trendy Meditations (id:xinchaochensi)
Author: Kafka of xinhuamen
Recently, with regard to the continuous improvement of financial data in the past six months, the state information office also held a special press conference on the 13th on the financial statistics in the first half of 2022 to introduce in detail various financial data and conditions since the first half of the year. However, at the press conference on July 13, the most eye-catching was suntianqi, director of the financial stability bureau of the central bank, who introduced the safety and risk issues of China’s small and medium-sized banks, as well as the disposal of Henan rural banks.
This is because recently, the safety of the assets of several rural banks in Henan Province has aroused the common concern of the masses with deposits. After all, if the deposit is unsafe, it will threaten the most basic cornerstone of the country, not just some simple financial problems. So how did these banks continue to burn to this stage? The author first combs the facts.
40 billion loopholes in rural banks
It’s very simple to say that these rural banks, represented by Yuzhou xinminsheng rural bank, which are controlled by new wealth group, can’t withdraw the money stored in the depositors, and the depositors protect their rights according to the legal provisions they understand. Eventually, the situation spread to all village bank depositors.
Since April 2022, many rural banks in Henan and Anhui provinces have been exposed to be unable to withdraw money. They are Yuzhou xinminsheng rural bank in Xuchang City, shangcaihuimin rural bank in Zhumadian City, Zhecheng Huanghuai rural bank in Shangqiu City, New Oriental Rural Bank in Kaifeng City, Guzhen xinhuaihe rural bank in Bengbu City, Anhui Province, and Yi County xinhuaihe rural bank in Huangshan City.
And this matter ferments in the field of public opinion because Yukang code “turns red on the ground”, that is, some foreign depositors come to protect their rights. As soon as they enter Zhengzhou through highways, railways or planes, they scan the code to apply for Yukang code and find that they already have Yukang code and are red code. The author wrote an article last month to analyze the specific situation of the red code. At the end of the article, the author wrote this,
“There is only one end to this incident: please find out everyone who cheated depositors and even played with the program to” put out the fire “and” protect themselves “and let them pay their due price.”
However, the evolution of things did not happen with people’s wishes. It was not until the late night of July 11 that Henan Provincial Local Financial Supervision Bureau and Henan Supervision Bureau of China Banking and Insurance Regulatory Commission issued the No. 1 announcement of the relevant case, promising to start paying 50000 yuan in advance for each damaged depositor.
There is a preliminary progress in this incident, which may be inseparable from a storm in front of the Zhengzhou Central Branch of the central bank on July 10 (Sunday). There is an episode here, that is, at noon on June 26, Henan Kaifeng New Oriental Village bank, which closed the online trading system, suddenly opened online trading for about 15 minutes. During the opening time of the online system, some depositors withdrew their deposits. This “fluctuation” caused more serious anxiety among the affected depositors. They began to worry that their deposits would be ignored and destroyed. In particular, in the early stage, the local government adopted the “red code” method, which seemed to be “technical governance”, and used its brains to eliminate foreign depositors. A series of practices made these depositors worried.
In fact, from the root, we should also take into account the overall macroeconomic instability since last year. Relevant data show that since this year, the scale of household savings has continued to grow. What some people may see is that the savings rate has increased and consumption is weak. However, the author believes that this means that the social mentality is on the decline in risk tolerance and anxiety, while the return on investment of various financial assets is all the way down. Under such a macro background, it is normal for the deposit explosion, which is extremely safe in the eyes of most people, to trigger a strong rebound in social sentiment.
Moreover, Yongmei’s malicious default at the end of 2020 has lowered the province’s financial reputation. What’s more, today (July 13) has begun to tell ghost stories, that is, it is suspected that the son of so and so’s richest man spread on overseas social media that “Shengjing bank and Hengfeng bank can’t withdraw money, and bankruptcy is imminent”, which has pushed the reality to a very dangerous situation. Therefore, taking decisive measures and quickly giving market confidence is the direct reason why the local regulatory authorities decided that they must pay in advance.
As for how to advance payment and how to liquidate after advance payment, it may have to be considered in a more backward position. After all, we should first stabilize the psychology of hundreds of thousands of depositors involved and the psychological expectations given to local villages and towns, small and medium-sized banks and even small and medium-sized banks across the province, so as to prevent the worst result of a run. Other factors can only be “discussed later”.
Fraud or financial crisis?
Since the disclosure of relevant information, some groups and forces have begun to fabricate some completely irresponsible and provocative content. For example, they believe that these deposits in rural banks represent the existence of a wide range of financial risks in China, which is a precursor to the financial crisis, and some people are even associated with the recent “shutdown loan boom”. In fact, these are two unrelated areas. The author will write another article to elaborate on the issue of “shutdown loan interruption”. From the current police disclosure and the disclosure of relevant insiders, these rural banks are actually extremely bad fraud cases.
The whole victimization process of depositors of rural banks is like this. Seeing these “Internet deposit” products on third-party platforms, such as Tianxing finance, jd.com finance, Binhai Guojin exchange, Du Xiaoman, etc., they were fascinated by the high interest rate income and the security introduction of “deposit” in the product introduction page, and then opened accounts and transferred funds, Then the app or applet of the village bank will “seriously” display the same interface as other normal banks or credit unions, and give the depositors the interest on account and other income on schedule. This is why the majority of victims think they are deposits.
The actual situation is another way. First of all, the business of “Internet deposit”, as sun Tianqi, director of the financial stability bureau of the central bank, said in an article published when the central bank banned it in January 2021, “financial activities must be licensed. The Internet deposit business of taking deposits across regions with the help of platforms is unlicensed driving and belongs to illegal financial activities”. In particular, according to the Interim Provisions on the administration of rural banks formulated by the then CBRC in 2005, rural banks are not allowed to absorb deposits across regions. In fact, third-party financial platforms and these rural banks are only cooperative businesses similar to advertising, such as streaming and promotion. They only provide platform access and charge booth fees. Most of these platforms do not really understand their products. In other words, once the funds enter the rural banks, these third-party financial platforms will have no financial technology.
In China’s banking system, these rural banks are too small, so the central bank and the CBRC can’t carry out real-time supervision well. In the current system, the senior managers of commercial banks and their branches at any level are subject to the approval or filing of the China Banking and Insurance Regulatory Commission. The capital flow of commercial banks is not only subject to the real-time supervision of their superiors, but also subject to the real-time supervision of the central bank. Any abnormalities in settlement and capital flow will leave traces.
However, rural banks are generally difficult to establish this perfect internal control and external supervision and restriction system because they are too small. This is the reason why the “Interim Provisions on the administration of rural banks” clearly stipulates that “rural banks shall not absorb deposits across regions”. Depositors themselves are easily attracted by high interest rates, and rural banks are divorced from the formal commercial banking system, so it is difficult to carry out industry self-regulation.
On the 13th, the media reported that “depositors of Henan rural banks: tracing the flow of money and finding that bank of Nanjing is a settlement bank”, but in fact, the fund clearing business of Bank of Nanjing acting as an agent of rural banks is handled in accordance with the relevant provisions of the payment system of the people’s Bank of China, and the relevant fund clearing services are legal and compliant, which is not related to the case.
China’s modern payment system is an important financial infrastructure. It is established by the people’s Bank of China and participated by various clearing institutions and financial institutions, including large-scale payment system, small amount payment system and online payment and clearing system. It is the core support system of the financial market and provides safe payment and clearing services for the whole social and economic activities. According to the regulations of the people’s Bank of China, small and medium-sized banking institutions that cannot directly participate in the payment system, such as rural commercial banks, rural banks and foreign-funded banks, are approved by the people’s Bank of China to handle capital clearing business through qualified banking institutions as direct participants. Bank of Nanjing is here to handle capital clearing business as an agent. Therefore, we can also see from this how difficult it is to supervise such small and medium-sized banks.
The most important reason why depositors are attracted by high interest rates is that “(it seems that) rural banks give too much”. Over the years, “private economists” and “private wealth management masters” have been spreading some absurd logic, that is, “your wealth management should outperform inflation, so you should buy XXXX”, completely ignoring the symmetry of risks and returns in the financial structure itself. In addition, in recent years, with the increasing cost of living in cities and the superposition of economic recession factors, it is normal for depositors to chase high interest for a while, while rural banks offer such a high interest rate of 4.7%, especially referring to the above figure, some chartered private banks also offer more than 4% interest in order to absorb deposits, which seems very normal.
But in fact, village banks can’t offer such high interest under normal business conditions. The operating profits of banks, especially small banks such as village banks, mainly come from interest margin, and the loan interest income minus the deposit interest payable to depositors. Generally speaking, rural banks themselves are facing rural areas. The bad debt rate of microfinance is high, and the income is limited. The loan interest rate cannot be set too high, and the deposit rate is high. The operation of rural banks is actually unsustainable. This is the reason why these rural banks “use their brains” to misappropriate deposits. If they operate well, they can’t make money, so they can only cheat.
On October 24, 2015, China’s banking industry fully liberalized the upper limit of deposit interest rates. This is an important step forward in the market-oriented reform of interest rates. At this time, the process of interest rate marketization in China was basically completed in form. After the liberalization of the floating proportion of deposit interest rates, banks have the right to decide their own deposit interest rates. Small and medium-sized banks can attract customers and enhance their competitiveness with large banks by raising their own deposit interest rates. However, in practice, many banks do not have the pricing ability of deposit interest rates. If individual banks blindly raise deposit interest rates, it will only lead to vicious competition. The United States has encountered similar problems in the process of promoting the marketization of interest rates. Vicious competition among banks led to a sharp decline in interest rate spreads, and eventually one after another collapsed.
Therefore, learning from the experience and lessons of foreign countries and preventing the financial risks caused by the process of promoting the marketization of interest rates, China has established a self-discipline mechanism organization of market interest rate pricing, and the whole industry continues to implement the self-discipline of deposit interest rates. The self-discipline upper limit of floating deposit interest rates agreed by different types of banks in different regions continues to constitute an invisible control line for deposit interest rates. Under this control line, most banks will rise by 1.4 times according to the benchmark interest rate, and some banks can rise by up to 1.5 times after application. The pricing self-discipline mechanism is somewhat similar to the market self-discipline organization of the “interest rate alliance”, which conducts self-discipline management on the independent pricing of banks. The existence of pricing self-discipline mechanism has played a role of escort in promoting the smooth implementation of interest rate marketization.
In June 2021, the pricing method of deposit interest rate was optimized and adjusted. The upper limit of deposit interest rate is determined by “benchmark interest rate” ?? Multiple “is adjusted to” benchmark interest rate + base point “. Moreover, different maximum “base point” caps are set for different types of banks and different deposit terms. Since it is an internationally accepted pricing practice to adopt the model of “benchmark interest rate + base point”, such adjustment is the result of unified negotiation of industry self-discipline.
However, it is difficult to restrict the behavior of rural banks that are free from industry self-discipline organizations, and asymmetric risk exposure comes from this. We can compare the similarities and differences between these rural banks and P2P financial products involved. The difference is that P2P is a non bank institution, and these rural banks involved in the case also have a “bank” brand, but in fact, both are typical Ponzi schemes, that is, the income is not enough to cover the interest, and only by attracting more money and borrowing new to repay the old can the operation of the system be maintained.
Moreover, P2P and Internet deposits were in the gray zone before the relevant regulatory authorities identified them as illegal financial activities. However, the brands of “bank” and “deposit” naturally have higher legitimacy.
Where will village banks go?
If we say that some people claim that “many banks will go bankrupt” is an ungrateful attempt to create public opinion and incite China’s financial turmoil, but after this disaster, many rural banks may really want to change their business models.
In terms of basic logic, medium and large banks have strict internal control, standardized management and methodical behavior. Even if there are insiders and corrupt elements, the risk is often controllable and will not cause “ashes” to the balance sheet. For example, contractors’ banks and other institutions, private funded shareholders, no matter how deliberately they deliberately empty the bank, it is always difficult to bypass the complex and risk contraposition internal control system, But this also led to a high degree of rigidity, inflexibility and even bureaucracy of the bank itself.
From the CPC Central Committee and the State Council to all provinces and cities, the slogans of small and micro finance are loudly shouted, but the implementation is very difficult. This is because the self-employed, individuals and small and micro enterprises that need small and micro finance have very complex business conditions, which need to be fully cultivated locally, and even financial institutions that live together day and night. And this is not what large and medium-sized financial institutions with standardized operation can do. The low deposit and loan interest margin makes such business activities extremely weak in the contemporary flat financial trading system.
This is the reason why Yunus, a Bangladeshi economist, won the Nobel Prize after he founded the civilian bank. He achieved a difficult and unprofitable career.
But then again, Yunus won the Nobel Peace Prize, not the economics prize, which in turn shows that small and micro finance itself does not have any particularity. For small and medium-sized banks, it may be really difficult to innovate in their operations. The author’s hometown has also opened village banks, but according to the Interim Provisions on the management of village banks, village banks must have a large and medium-sized commercial bank as the investor, just as the investors of these village banks in Yuzhou are Xuchang rural commercial bank.
In my hometown, due to the strict supervision of its rural banks by the investors, I personally feel that this rural bank is no different from other sub branches of the commercial bank except for some items in the bulletin board. The project of the bulletin board, or the poverty alleviation project participated in by other branches of the commercial bank, may be better.
At present, the vast majority of the affected depositors of rural banks are foreign depositors, who were attracted by allowing Internet deposits in those years. If there were no Internet deposits, perhaps this would not have happened. These rural banks may be in a similar situation to those I have seen, and become “zombies” controlled by local medium and large banks.
This is also why there is no need to worry about the chain reaction caused by the recent deposit impact of rural banks around Henan, because most rural banks have actually become such “zombies”. Because of this, it is more necessary to explore the form and significance of these rural banks in the future. Will it become a financial institution for development and poverty alleviation, or will it merge with the investment bank completely?
Defend our property
The consequences of the Henan Rural Bank incident are not what everyone wants to see. At present, the victims are trying to claim full compensation by invoking the deposit insurance regulations, which stipulates four situations that can be compensated, “(1) the deposit insurance fund management institution acts as the takeover organization of the insurance institution; (2) the deposit insurance fund management institution implements the liquidation of the cancelled insurance institution; (3) the people’s court rules to accept the bankruptcy application of the insurance institution; (4) other circumstances approved by the State Council.” At present, it may be difficult because the conditions are not available.
At present, the greatest possibility is still to deal with fraud cases like Pan Asia, freeze relevant financial disposal, and return them to the victims. In the early stage, some of the involved and related properties have been frozen. It is said that there are billions of dollars involved in the case, while the related properties are tens of billions. These may be the key to finally quell this storm.
First of all, it is undeniable that the regulatory system is responsible. Indeed, it is extremely difficult for such regional small and medium-sized banks to conduct remote supervision, especially with the help of the current highly developed capital flow system, and the movement of stock funds, many Ponzi scheme fans like the game of 10 wells and 5 covers.
According to the current regulatory provisions, banks are supervised by the central vertical banking and Insurance Regulatory Commission and the central bank system. However, in fact, rural banks are deeply rooted in the local financial system. It may be more appropriate for them to be supervised by the local financial work bureau or the local financial regulatory bureau, but in terms of authorization, local financial institutions can only supervise small loan companies point to company.
As a result, those who have the ability to supervise and control risks have no rights, and those who have the right to supervise are beyond their reach and lack tools. This regulatory dilemma is the root cause of the 40 billion risk exposure of four small rural banks.
How to further investigate the responsibility and solve the loopholes in the regulatory system requires the continuous attention and supervision of public opinion.
In addition, the author also wants to remind readers who have daily investment and financial management ideas. In the final analysis, after decades of development, China has developed from a country with relatively insufficient capital to a country with relatively excessive capital. What is scarce is not investable capital, but investment projects with stable returns and bright prospects. Ten to twenty years ago, many high interest projects would really pay off. Now, don’t hesitate, it’s illegal fund-raising and fraud in Chengdu. As ordinary people, especially many people, our financial knowledge is far inferior to that of the author. I’m afraid we have to accept this idea of trying to achieve financial freedom through financial products.
It should be noted that the most basic financial knowledge is that risk and return are symmetrical, and high return must be accompanied by high risk. And the Internet, which is not big, can’t add extra revenue. For example, in this event, the interest rate of 4.7% doesn’t seem to be high, which is much less than that of many risk products, and the circle in which the author lives often hears the “legend” of several times and more than ten times the income a year. However, as a deposit product, its interest rate is much higher than other deposit products. If you also encounter this situation in the future, you must think deeply. After all, as investors, we should be responsible for our own money.
In terms of formal channels, you have to pay corresponding costs and risks for every benefit you get. Moreover, liars often take advantage of people’s psychology of trying to take advantage of small advantages and suffer heavy losses. You want them to pay 1% to 2% more interest than other deposits, but liars are greedy for your principal.