Comments by Iikka Korhonen, on Interest Liberalization and the Estimation of Implicit Interest Rates in China's Banking Sector

Abstract

November 01 2017 Comments by Iikka Korhonen, on Interest Liberalization and the Estimation of Implicit Interest Rates in China's Banking Sector Author and Article Information Online Issn: 1536-0083 Print Issn: 1535-3516 © 2017 by the Asian Economic Panel and the Massachusetts Institute of Technology2017Massachusetts Institute of Technology Asian Economic Papers (2017) 16 (3): 308. https://doi.org/10.1162/asep_a_00577 Cite Icon Cite Permissions Share Icon Share Facebook Twitter LinkedIn MailTo Views Icon Views Article contents Figures & tables Video Audio Supplementary Data Peer Review Search Site Citation Comments by Iikka Korhonen, on Interest Liberalization and the Estimation of Implicit Interest Rates in China's Banking Sector. Asian Economic Papers 2017; 16 (3): 308. doi: https://doi.org/10.1162/asep_a_00577 Download citation file: Ris (Zotero) Reference Manager EasyBib Bookends Mendeley Papers EndNote RefWorks BibTex toolbar search Search Dropdown Menu toolbar search search input Search input auto suggest filter your search All ContentAll JournalsAsian Economic Papers Search Advanced Search Iikka Korhonen: This paper offers empirical estimation of “implicit” interest paid on deposits by Chinese banks. It argues that because of explicit interest rate caps, Chinese banks have been forced to offer other monetary rewards to attract deposits. Moreover, these implicit interest rates are almost comparable in size to explicit interest rates, or those allowed by the regulator. I find the empirical results quite believable, and they have an important implication for interest rate liberalization in China (which has already happened): Actual effects of liberalization on banks’ behavior and, for example, profitability may be much smaller than many people previously thought. This is an important result for many reasons. First, banks’ financial standing post-liberalization might be much better than we previously thought, as they are able to reduce implicit interest payments. Second, the stability of the banking sector need not be jeopardized because of interest rate liberalization per se; banks... You do not currently have access to this content.