The People’s Bank of China’s today warned banks to control the size of their loans, to avoid another credit crush.
Huangshan is an inter-bank market trader. She oversees bank liquidity flows, and keeps an eye on cash in and cash out.
"At the beginning of the day, the bank has a liquidity insufficiency table, which will tell you whether the bank should borrow money from the market or lend it out. At the end of the day, the central bank requires every bank to have a certain amount of reserves. Therefore, banks decide their amount of borrowing or lending depending on daily situation. " Huang Shan, Bank Trader said.
Over night inter-bank lending is the most commonly used short-term product. Its rate usually stays around 4 percent, but this rate shot up on cash constrains in June. The People’s Bank of China didn’t barge at the rising rates, averting its routine. The central bank’s harsh attitude has sent the rates further to as high as 30 percent on 20th June.
"When rates reached new high, trading floor started a shouting game telephones QQ, everyone’s talking about it, because it never occurred before." Huang Shan said.
After the PBOC boosted cash into the market on pressure of the sky-rocketing rates, the cost of borrowing finally lowered down to normal level. The incident has made analysts such as Huangshan realise that banks should control its risks more, and rely more on the market, rather than counting on lifelines from the central bank all the time.
Source: CCTV
