Berlin, November 2002 – I have registered for a seminar in legal rhetoric and communication. When I arrive, I see only a few pitiful people in class. I wonder: “Should I really stay?”
“In the legal business, people don’t communicate, especially write, effectively.”, say the presenters.
Working in-between legal and finance, I know today that they were (and still are) right. Besides, I was right to stay, too.
On my blog, I want to make legal and finance easy. I hope you enjoy reading.
Thursday, July 11, 2013
Cash Crunch in China! – The People's Bank of China and the SHIBOR rate
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
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.”
one day later, on June 25, the PBC made a u-turn, announcing to
provide Chinese banks with liquidity if need be.
again 3 days later, PBC's governor Zhou Xiaochuan, publicly
will use all kinds of tools and methods to appropriately
adjust liquidity and to maintain the overall stability of markets”
A visualization of the full data set is available here
what exactly is SHIBOR and how does it work?
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!
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.
and publication process
business day, before 11:20 a.m., SHIBOR panel banks submit quotations
of borrowing and lending for the following maturities:
quotations are based on current market conditions.
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
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.
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.
SHIBOR working group, a PBC internal entity, constitutes the SHIBOR