Supervision Environment and Development of Interbank Negotiable Certificates of Deposit in the Background of Financial De-Leverage

Abstract

Interbank negotiable certificates of deposit market development quickly since the Central Bank restarted it in 2013. It’s becoming an important promoter for bank’s expansion and arbitrage instead of its function “regulator of liability liquidityâ€, with large liquidity and systemic risk hazards behind. This paper analyzes the arbitrage model and potential risks of interbank deposits from different angles, explains the generation and transmission process of financial leverage, focusing on the interbank capital chain and potential risks, revealing the credit risk and liquidity risk faced by small and medium banks. Finally, this paper considers the future development of interbank deposit market.