In the lemon effect of deposit market, bad money drives out good money everywhere

2022-06-27 0 By

Hello, ^-^ I am the “tao” that can let you know more about finance!Solemnly declare: this article is not advertising, not any interest relationship, not investment advice, only represents my personal opinion to share.Do not know if there is a careful friend, pay attention to a word mentioned in the article: lemon market effect.In fact, in 1970, an American economist named George Akerloff described this phenomenon in his paper “The Market for Lemons: Uncertainty in Product Quality and Market Mechanisms”.Lemons, actually, have nothing to do with lemons.The reason is that “lemon” is American slang for “inferior product”.Lemon effect = defective effect.Kind of like the old saying in China, bad money drives out good money.The overall understanding is that in the case of information asymmetry, good products are easy to be eliminated, while inferior products will gradually occupy the market.Finally, in the most extreme cases, the market is filled with inferior products.】If you are interested in searching for this word on search engines or platforms like Douyin, you will find an interesting phenomenon.Almost everyone, when they explain the term, uses the case of the used car market.The reason behind this is simple: the 1970 paper used the used car market.Isn’t it amazing that more than 50 years later, the same cases are still repeated over and over again?I won’t talk about specific cases.It also spawned George Akerloff.Not only was he the winner of the Nobel Prize for economics in 2001, but he was married to the first woman to lead the Federal Reserve.First, deposit can be said to be the most basic and important financial behavior or activity…Is an important part of a bank’s liabilities…The main body of deposits is the basis of the bank’s retail business…No deposit, no loan, no bank……..Well, to be blunt, deposit products are important, very important!Importantly, it also means that there must be no “chaos” and that there should be no “chaos”.You can try to understand why there is a self-regulation mechanism even though the floating ceiling of deposit interest rate is no longer set since October 24, 2015.Of course, the importance of savings is indisputable.There is no need for discussion.But the interest rate on deposits is definitely something everyone is always concerned about.The topic of interest rate cut, in fact, also need not talk more, will certainly cut interest rates, but is the problem of time.When is it healthy?How long will fall?The general reasons, which do not need in-depth discussion, are as follows: Based on the current economic environment, the existing general policy is to reduce the cost of real financing.To reduce the entity financing cost, there are many operational possibilities, but reducing the bank debt cost is inevitable.If it is inevitable to reduce the cost of bank debt, deposit interest rate as the core factor to determine the cost of bank debt, the rate cut will become inevitable.But interest rate cuts are across the plate.But from the point of view of ordinary savers, they would certainly want products with higher interest rates.The pursuit of profit is easy to understand.Second, let’s look at the background of deposit product interest rate.Although there is a self-discipline mechanism to regulate the interest rate of deposit products, it does not mean that the interest rate of deposit products of every bank is the same.In effect, it is based on a cap on the benchmark interest rate.Ahem, you’re below base rate OK, but no more.Of course, given the size and size of banks, there are also regional differences.Therefore, because of these factors, specific bank’s interest rate floating conditions will be different.Cough cough, without a stick killed, it seems to give a few small and medium-sized banks to stay alive.For example, in some regions, only four lines are distinguished from outside the four lines.You said that if it is a local city firm, the number of local outlets may not be less than the big four.But what about rural commercial banks, rural banks, or private banks?It’s all grouped together…The differences are huge.In addition, the “innovative deposit” has been suspended, and the existing deposit products are basically the same, except for the interest rate.But almost uniform markup ceiling requirements, interest rate “marketization”, it is a long story…We fall to reality, also can’t understand, why some banks deposit product interest rate is so high.Straightforward point, may be directly reflected in the product…Obscure point, integral mall, agreement deposit and so on….”Complex point”, use various resources, all kinds of obscure means….Three, chat here we have to mention, the beginning of the talk “lemon market effect”.Across the market for deposit products, different banks are “selling” deposit products.It seems that every bank’s deposit products look the same.We also know that banks take deposits and then lend them out.But there is a certain pattern here.The higher the deposit rate, the higher the lending rate.If the lending rate is low and does not cover the cost, banks will not do it.Of course, the corresponding loans as credit assets are distinguished by high quality and low quality, corresponding to the level of overdue possibility.On the contrary, the deposit products corresponding to loans can be divided into high quality and low quality in theory.Is that how you distinguish?Unfortunately, it doesn’t.Because banks absorb low-interest deposits, it is not necessarily low-risk loans.Therefore, the high quality and low quality of deposit products cannot be distinguished simply by the deposit interest rate.This also forms the difference of deposit product kernel, namely “information asymmetry”.Meanwhile, based on the existence of deposit insurance, the state endorses.Anyone with half a brain would opt for “high interest” savings products.What if the high-interest deposits of some banks were allowed to continue?Just like the lemon market effect, high-interest deposits dominate the deposit market.Derivative to loan products, customers feel that the loan interest rate is high, high-quality customers will borrow money will be less and less.Inferior customers were forced to borrow at interest rates that were too high to repay.The whole financial market just blew up.Therefore, the necessary “restrictive measures” are particularly necessary.And the measures against “bad currency” will be more and more strict, and more “standard”.Cutting interest rates is one thing, but there will be more ways and means to crack down on “high-interest deposits”.Wait and see ~~ four, finally have a hypothesis, if there is no deposit insurance will be how….Do you still dare to deposit money at these banks?Can you still trust a guarantee based on bank endorsement?Or will choose financial products ~