What are the impacts if peer-to-peer self-regulation upgrades/strengthens?

Recent market discussions focus on the possible pathways for upgrading the self-regulatory mechanism for interbank deposit pricing. Since April 2022, when China established a market-oriented deposit rate adjustment mechanism, interbank deposit rates have undergone a series of regulations, gradually improving the market-based deposit rate mechanism, with the convex points on the interest rate curve gradually disappearing. In April 2022, member banks of the self-regulatory initiative referenced bond market rates, represented by the 10-year government bond yield, and loan market rates, represented by the 1-year LPR, to promote market-based deposit rate pricing. In September 2022, major financial institutions began proactively lowering their listed deposit rates. In 2024, China’s deposit rate marketization reform accelerated: on April 8, 2024, the market interest rate pricing self-regulatory mechanism issued the “Proposal on Prohibiting Manual Interest Compensation to Maintain Deposit Market Competition,” clarifying that banks should include manual interest compensation within regulatory scope and strictly prohibit practices such as pre-commitments or manual interest payments at maturity to circumvent deposit rate authorization requirements or self-regulatory caps. On November 29, 2024, the self-regulatory mechanism issued two new initiatives: first, the “Proposal on Optimizing Non-Banking Interbank Deposit Rate Self-Regulation,” which includes non-bank interbank demand deposits into self-regulation; second, banks are required to include a “rate adjustment safeguard clause” in deposit agreements with corporate clients to ensure that interest rate adjustments are promptly reflected in deposit operations.