Interbank Demand Deposit Self-Discipline "2.0" or Expected to Reduce Banks' Burden by 0.7bp

Recently, discussions about the industry’s autonomous “2.0” version of demand deposit management have been heating up.

On March 12, according to Cailian Press, the market interest rate pricing self-discipline mechanism convened a meeting with some bank members, requiring strengthened self-regulation. The proportion of interbank demand deposits exceeding 7-day reverse repurchase operation (RRP) policy rate (1.4%) at the end of each quarter should not exceed 10%–20%.

A person from the financial market department of a state-owned major bank told the 21st Century Business Herald that relevant self-discipline management has been in place “for some time” and is currently pushing for a reduction in the industry’s operational costs.

An asset management center staff member from a city commercial bank also told reporters that the bank had previously reduced high-interest demand deposits exceeding the policy rate of 1.4%.

Additionally, some insiders revealed that as early as the end of last year, there were market rumors that adjustments related to MPA assessments might be implemented in the second quarter of this year. By mid to late March, as the quarter-end approached, expectations for specific rules to be clarified intensified again.

The insider said, “The terms we heard back then were more stringent than the current rumors. Based on the current speculation, although the overall approach still aims to guide liability costs downward, the actual implementation might be relatively lenient, and the real impact on banks could be lighter than expected.” Overall, the voices calling for adjustments seem to be more concentrated among large banks.

Market discussion: MPA assessment expected to “link” to high-interest interbank deposits

Currently, the transmission efficiency of deposit and loan interest rates shows clear differences. On one hand, loan interest rates follow the “7-day RRP rate → LPR rate → loan interest rate” path more smoothly, with a “fast decline” trend aligned with policy rate reductions. On the other hand, deposit interest rates are constrained by banks’ “scale obsession” and the trend toward fixed-term deposit structures, making costs more sticky and slower to decline. This asymmetric transmission has become a key reason for the persistent pressure on banks’ net interest margins.

Against this backdrop, unblocking the deposit interest rate transmission chain has become a focus.

Liu Chengxiang, chief analyst of banking at Kaiyuan Securities, told the 21st Century Business Herald that interbank deposits are sizable and, under the trend of “wealthification” of deposits, could trigger irrational competition among banks, which may become a key focus of future self-discipline management.

He predicts that the “Demand Deposit Self-Discipline 2.0” may be incorporated into the pricing behavior assessment under the Qualified Prudential Evaluation (EPA) system and linked more closely with the Macro Prudential Assessment (MPA).

If the “Demand Deposit Self-Discipline 2.0” is ultimately implemented, its impact is expected to gradually transmit from banks’ liabilities to the yields of asset management products. A wave of adjustments around bank liability cost management and the upgrade of monetary interest rate transmission mechanisms is underway.

It is understood that banks’ deposit pricing behaviors are constrained by both EPA and MPA systems. EPA is executed through the market interest rate self-discipline mechanism, focusing on evaluating and regulating banks’ deposit rate setting behaviors, affecting their qualification to issue large certificates of deposit and interbank certificates. MPA, conducted by the People’s Bank of China, directly adopts EPA’s quarterly assessment results as a “pricing behavior” indicator and links them to substantive measures such as reserve requirement ratios and market access. Together, they form an effective dual management system.

If the scale of demand deposits is limited, where will the funds flow? As of March 12, a trader from a state-owned bank’s financial market department told reporters that the market has already responded in advance—recently actively allocating interbank certificates of deposit, while the bond market has strengthened, and long-term bond yields have “fallen sharply.”

From “1.0” to “2.0”: The transmission of interest rates is in progress

In fact, strengthening the management of interbank deposit interest rates is not a new topic. Recent regulatory actions, such as manual interest top-ups, self-discipline mechanisms for interbank deposits, and interest rate floor clauses targeting arbitrage behaviors, have effectively promoted a decline in bank deposit costs.

Looking back at the previous round of self-discipline management, on November 29, 2024, the market interest rate self-discipline mechanism issued the “Initiative on Optimizing the Self-Discipline Management of Non-bank Interbank Deposit Rates” and the “Self-Discipline Initiative on Introducing ‘Interest Rate Adjustment Floor Clauses’ in Deposit Service Agreements.” The former aims to bring non-bank interbank demand deposit rates into self-discipline management, making their rates more aligned with policy rates; the latter aims to ensure deposit rates can adjust quickly following policy guidance, reducing cross-bank deposit migration.

The China Minsheng Bank’s chief economist, Wen Bin’s team, analyzed that the motivation behind the previous interbank deposit rate management was, on one hand, the continuous decline of banks’ net interest margins, with high costs of interbank liabilities being a significant disturbance; on the other hand, to expand monetary policy space, it was necessary to further unblock the interest rate transmission system. At that time, the deviation between deposit/loan rates and policy rate adjustments was large, impairing transmission efficiency.

A fund manager from a joint-stock bank told the 21st Century Business Herald that the new regulations likely target the phenomenon of some branches engaging in high-interest interbank deposits to attract funds, driven by “scale obsession” and the pressure to meet new deposit growth targets. However, he believes that, compared to the past, this situation is no longer widespread.

From the effects, Industrial Securities Research pointed out that after the self-discipline rules were issued at the end of November 2024, based on the data from the first half of 2025, the cost of interbank liabilities for listed national banks decreased by about 30–40 basis points (bp), with total liability costs dropping by about 3–4 bp.

The structure of bank liabilities also changed: the average proportion of interbank deposits among listed national banks fell from about 10% to around 9%. Among them, state-owned large banks continued to regard interbank deposits as an important liability source, increasing the proportion of fixed-term deposits and extending durations; joint-stock banks mostly reduced the scale and proportion of interbank deposits, but the share of demand deposits increased.

Declining bank liability costs may impact cash management yields

Regarding the specific future directions for further regulation of interbank deposits, Liu Chengxiang told reporters that the assessment rules might continue the “1.0” version’s daily average limit approach, setting upper limits on the proportion of deposits exceeding the RRP rate each quarter, with graded penalties for excess. He estimates that about 16 trillion yuan of interbank demand deposits are involved, and if implemented, could boost the net interest margin of listed banks by approximately 0.7 bp.

So, if the “Demand Deposit Self-Discipline 2.0” version is implemented, what potential impacts could it have on banks and the asset management market?

Luo Feipeng, a researcher at China Postal Savings Bank, told the 21st Century Business Herald that regulators are likely to strengthen management of high-interest demand deposits. This would influence banks’ liability costs—reducing high-interest interbank demand deposits could lower banks’ liability costs and help stabilize net interest margins. On the asset management side, yields on cash management products and money funds might decline, possibly prompting some funds to shift toward interbank certificates of deposit and similar assets.

A fund manager from a joint-stock bank admitted that regulating interbank behavior from this perspective has limited overall impact on banks’ liability costs. He said, “For banks, interbank liabilities mainly serve as liquidity supplements; their role as leverage to boost yields has significantly weakened. Without a clear improvement in loan demand, the cost of interbank liabilities is not particularly high.” He also pointed out that if bank deposits mature and flow more into non-bank institutions, the difficulty for banks to “reduce costs and improve efficiency” could increase accordingly.

Regarding the future impact on the bank wealth management market, Liu Chengxiang’s team further analyzed that if the interest rate on interbank demand deposits for wealth management and public funds drops from 1.6% to 1.4%, the yields of all wealth management products could decline by about 1.47 bp, with cash management products decreasing by about 2.56 bp; all public fund yields could decline by about 1.43 bp, with money funds dropping about 3 bp. Funds might shift toward increasing allocations in interbank certificates of deposit, short-term fixed deposits, and bonds within three years.

A fixed-income investment manager at a city commercial bank’s wealth management subsidiary told the 21st Century Business Herald that the short-term impact of declining interbank deposit rates is limited. However, in the long term, driven by industry self-discipline and other factors, a general decline in yields is inevitable. He expects yields on cash management products to be directly affected by 2–3 basis points and plans to actively seek alternative asset classes.

He added, “Currently, the prices of interbank certificates of deposit are already falling. If we do not proactively adjust strategies, future yields could face larger declines. Meanwhile, finding high-quality assets that match risk and return will also be a challenge.”