In
January 2013, the SHIBOR overnight interbank rate stood at roughly 2
%. On June 20 of this year, it peaked at 13 %. This is called a cash
crunch.
On
June 24, the People's Bank of China said “the onus is on lenders
to better manage their own balance sheet” (Financial Times June
24, 2013). “It [PBC] also said liquidity was at a “reasonable
level”, an indication of its reluctance to answer banks' pleas for
cash injections to alleviate the market stress.”
Just
one day later, on June 25, the PBC made a u-turn, announcing to
provide Chinese banks with liquidity if need be.
And,
again 3 days later, PBC's governor Zhou Xiaochuan, publicly
announced: “We
will use all kinds of tools and methods to appropriately
adjust liquidity and to maintain the overall stability of markets”
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| A visualization of the full data set is available here |
But
what exactly is SHIBOR and how does it work?
SHIBOR
is the interest rate for unsecured interbank RMB lending. Its Code of
Conduct regulates SHIBOR in six articles and on roughly one page. To
me, this looks great – eventually a regulator who can keep things
short! Others might have an opposite reaction – such a short
regulation cannot be good!
Administration
SHIBOR
is regulated by the People’s Bank of China (PBC). It is the
National Interbank Funding Center (NIFC), a sub-institution of PBC
that does the administrative work.
Calculation
and publication process
Every
business day, before 11:20 a.m., SHIBOR panel banks submit quotations
of borrowing and lending for the following maturities:
The
quotations are based on current market conditions.
Excluding
the two highest and two lowest quotations, NIFC calculates the
weighted averages of the price quotations. Thereafter, the averages
are published on the SHIBOR website, along with each bank’s
individual quotation.
SHIBOR
panel
A
quoting bank must be either primary dealer in the Chinese money
market or market maker in China’s FX market. Naturally, a SHIBOR
panel bank must be capable to price interest rates, using an internal
yield curve and a transfer pricing mechanism.
On
the merits the SHIBOR working group considers elements such as
transaction volume, transaction continuity, price discrepancy in
prior quotations, and the bank’s credit rating.
The
SHIBOR working group, a PBC internal entity, constitutes the SHIBOR
panel annually.
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| You can find some data on SHIBOR Panel Banks here |
Supervision
The
SHIBOR working group of the PBC ensures the supervision. This
includes evaluating the responsibility of each panel bank.
Resource:
- www.shibor.org
- www.pbc.gov.cn
