Professor Zhisheng Li, the director of the base ,and associate professor Ling Jin, the researcher of the base has published a collaborative paper titled "Competition in the Interbank Negotiable Certificate of Deposit Market and Banks' Active Liability Cost" in the Issue 4, 2025 of China Industrial Economics. This journal is recognized as an A category journal in economics by Zhongnan University of Economics and Law.

Abstract：To tackle the growing complexity of liquidity management in the context of financial deepening, Chinese commercial banks have been gradually shiting from passive liability management to active liability management. In December 2013, the People's Bank of China issued The Interim Measures for the Administration of Interbank Negotiable Certificates of Deposit (INCDs) to expand financing channels for commercial banks. Over the past decade, INCDs have become an essentialin strument for banks’ active liability and liquidity management. Before 2016, small and medium-sized banks were the primary issuers in the INCD market. In recent years, due to the fierce competition in deposits and the pressure of liquidity management caused by financial disintermediation, large-sized banks have increasingly entered the INCD market. This influx has precipitated significant changes in themarket structure and competitive dynamics of the INCD market. Considering that the market competition mechanism plays a fundamental role in the operation of the INCD market, this paper explores how the changes in the market competitive landscape of the INCD market affect the cost of banks’ active liabilities and what responses should be adopted at the level ofmarket construction.

Using the transaction-by-transaction issuance data of the Chinese INCD market from 2014 to 2022, this paper finds that competition in the INCD market significantly raises the cost of banks’ active liabilities, and this effect intensifies as the market share of large-sized banks rises. The mechanism analysis indicates that under the restrictions on market access, there exists a strong interest correlation between investors and large-sized banks. This gives INCDs issued by large-sized banks a distinct competitive advantage. The competitive effect brought about by the increase in the market share of large-sized banks cannot be explained by the risk differences among different banks, At the same time, it leads to the distortion of the issuance pricing of INCDs. Further analysis reveals that the economic effects of market competition in the INCD market can be transmitted to the asset side of banks. manifested as a decrease in on-balance sheet liguidity creation and an increase in off-balance sheet liquidity creation. The risk level of banks also increases. Market liquidity supplement and financial supervision can effectively mitigate the negative effects of changes in the market competitive landscape.

The above findings have several policy implications. Firstly, the key to promoting the effective operation of the competition mechanism in the INCD market lies in continuously enhancing the depth and breadth of market participants. Regulatory authorities may consider gradually relaxing market access restrictions and expanding the range of investors in the interbank market, Secondly, regulatory authorities should strategically intervene by injecting liquidity into the lNCD market to alleviate the market competition pressure. They should pay attention to the penetrative supervision of the banking business to reduce the damage to market quality caused by problems such as capital nesting. Thirdly, banks should focus on expanding the sources of liability funds and take effective measures to smooth out the impact of competitive pressure. They should avoid excessive risk-taking when facing liability pressure to ensure the stable operation of asset-liability management.

The contributions of this paper are as follows. Firstly, it investigates the impact of competition in the INCD market on the cost of banks’ active liabilities, which provides a valuable supplement to relevant literature on banking competition and liability management, Secondly, it analyzes how interbank competition affects INCD issuance pricing without underwriters, extending studies that include the pricing role of underwriters in the field of the bond market. Thirdly, it systematically analyzes the competitive advantages of large-sized banks and the causes of the pricing issues they trigger, providing clear policy implications for the development of the INCD market and the institutional reform of the Chinese bond market.

Keywords： interbank negotiable certificates of deposit; market competition; banks’activeliability management; liability cost

LINK：1006-480X(2025)04-0099-19

Author profile

Ling Jin, PhD, Associate Professor, School of Finance, Zhongnan University of Economics and Law. His research interests include financial development, financial crisis management and financial innovation. He has published several papers in Economic Research Journal, China Economic Quarterly, Journal of Management Science in China, Journal of Financial Research, Pacific-Basin Finance Journal and other journals. The relevant research has won the Excellent Paper Award of the First China Financial Academic and Policy Forum, the Excellent Paper Award of the 17th Annual Meeting of Financial Engineering, and the Excellent Paper of Financial Research in 2021, etc.

Chunhao Yu, Master's Candidate, School of Finance, Zhongnan University of Economics and Law.

Zhisheng Li, Vice President and Professor of Southwest University of Finance and Economics, Director of Innovation and Talent Base for Digital Technology and Finance.He mainly engages in research on financial innovation, financial risk management, market microstructure, and regional financial development. He has presided over multiple projects such as the Innovation and Intelligence Introduction Plan for Disciplines in Colleges and Universities, major projects from the National Social Science Fund, and youth and general projects from the National Natural Science Foundation. His research findings have been published in journals such as Economic Research Journal, China Economic Quarterly, Financial Research, Journal of Banking and Finance, and Journal of Financial Markets.