Why does the interbank market frequently experience a "tight balance" state?

As the core platform for borrowing, pledging, and short-term financing among financial institutions, the interest rate level in the interbank market not only reflects the liquidity status of the banking system but also becomes a key channel for the transmission of monetary policy. In recent years, the interbank market has frequently shown a "tight balance" state, typically manifested by soaring interest rates at the end of quarters and months, abnormal fluctuations in overnight borrowing costs, and even mismatches among institutions under credit stratification.

The reasons for this situation are diverse. Firstly, it is intertwined with macro policies and seasonal factors. At times when fiscal expenditure is lagging and tax payments are concentrated, the supply of market liquidity has not kept pace, leading to increased short-term funding pressure. Secondly, stricter regulations and adjustments in on-balance and off-balance sheet asset structures have contributed to this. The financial deleveraging policy has accelerated the contraction of interbank chains, narrowing the channels for some small and medium-sized banks to obtain liquidity.

Furthermore, the central bank's monetary policy tools have shifted to a dual focus on "quantity + price" control, making the funding environment more susceptible to expected fluctuations. For example, in the context of market expectations of tightening policies, institutions tend to hold excess reserves, which exacerbates the mismatch of funds.

The normalization of this "tight balance," while not equivalent to systemic risk, has significantly changed the way banks allocate assets and price risks, profoundly affecting the flow of funds to the real economy.

Does liquidity tightness directly raise financing costs?

In the transmission chain, does tight liquidity in the interbank market necessarily lead to an increase in the cost of financing for the real economy? The answer is not simple.

Firstly, it is necessary to clarify that the interbank market and the real financing market belong to different levels: the former is short-term fund transactions among peers, while the latter is credit supply aimed at enterprises and households, with both having a disjointed yet highly correlated relationship. Once interbank funds become tight, the cost of bank liabilities rises, and the interest rate quotation mechanism on the asset side adjusts accordingly, thereby pushing up loan rates.

For example, during the "cash crunch" in 2013, the overnight interest rate in the interbank market soared to over 13%, which not only led to a sharp decline in mutual trust among institutions but also forced banks to shrink asset allocations, making short-term financing for enterprises significantly more difficult, with some local financing platforms nearing default.

However, it is worth noting that financing costs are influenced by factors such as the central bank's policy interest rates, the LPR quotation mechanism, and credit quota allocation, meaning that tightness in the interbank market does not necessarily lead to "first-level transmission" in all scenarios. If the central bank injects liquidity through open market operations or lowers policy rates through medium-term lending facilities (MLF), then even if interbank rates fluctuate in the short term, real financing rates may remain stable.

Therefore, to assess the impact of liquidity tightness on financing costs, one must not only look at short-term interest rate levels but also consider the willingness for credit expansion, risk preferences, and the efficiency of structural tool allocation.

How do banks "reallocate" credit resources under liquidity pressure?

In a tightening funding environment, banks often face dual pressures on both the asset and liability sides: on one hand, the cost of interbank liabilities rises, leading to more conservative liquidity management; on the other hand, on-balance sheet credit expansion is limited, requiring more precise allocation of credit resources.

At this time, banks will "reallocate" their asset portfolios through various means. High-quality clients are prioritized for loans, with relatively loose financing conditions; clients with marginal credit qualifications face tightened quotas, rising interest rates, or even "advisory withdrawal." This creates a hidden mechanism of credit discrimination, concentrating market credit resources more on leading enterprises.

Additionally, against the backdrop of banks compressing non-standard assets and cleaning up wealth management businesses, the proportion allocated to standardized bond markets has increased. However, when liquidity tightness spreads to the bond market, corporate bond financing will also be squeezed. After the Yongmei incident in 2020, banks' risk preferences plummeted, and bond issuance rates generally rose, making it even harder for some private enterprises to access direct financing channels.

Therefore, when responding to liquidity pressure, banks do not simply "stop lending," but instead optimize the allocation of credit resources through "price adjustments" and "client screening." While this behavioral logic can maintain asset safety, it also leads to a marginal deterioration in the financing environment for small and medium-sized enterprises and high-risk industries, compressing the "financing elasticity" of the real economy.

Can monetary policy adjustments effectively alleviate "transmission distortion"?

In the face of frequent fluctuations in the interbank market, the central bank is increasingly focusing on "precise drip irrigation" and "counter-cyclical adjustments" in its monetary policy operations. Common tools include open market operations, standing lending facilities (SLF), medium-term lending facilities (MLF), and structural monetary tools such as relending and carbon reduction support tools.

However, there remains a risk of "transmission distortion" between policy intentions and market responses. On one hand, the central bank's price signals may not quickly change banks' psychological expectations regarding liquidity; on the other hand, even if banks obtain low-cost funds, they may not be willing to deploy them on a large scale to high-risk, high-capital-occupying real enterprises.

For example, in 2022, the central bank repeatedly lowered the MLF rate to release easing signals to the market. However, the decline in the LPR was limited, and the actual reduction in corporate financing costs did not meet expectations. One reason is that banks tend to prefer purchasing low-risk assets such as government bonds and policy financial bonds during economic downturns, rather than expanding their credit exposure to private enterprises.

Moreover, local financial institutions face higher thresholds for obtaining central bank funds, leading to "asymmetric transmission" of policy tools at the regional and institutional levels. This means that even if monetary policy is broadly accommodative, if the transmission mechanism is obstructed, liquidity may become "stagnant" and fail to reach the real economy.

Do corporate financing perceptions synchronize with the state of bank funds?

Is the "perceived temperature" of corporate financing consistent with the "technical indicators" of the interbank market? In reality, there is often a significant misalignment between the two.

Some large state-owned enterprises and platform-type enterprises, due to sufficient credit backing, often obtain excess credit first when interbank liquidity is ample, while small and medium-sized enterprises still face obstacles such as insufficient guarantees and slow loan approvals even during periods of overall interest rate declines. This "structural financing difficulty" is fundamentally a result of imbalances in the credit allocation mechanism.

Furthermore, the financing costs perceived by enterprises include not only nominal interest rates but also implicit costs, such as financing time, guarantee costs, and uncertainties in loan renewals. When bank funds are tight, these non-interest costs often rise in tandem.

A typical case is during the pandemic, when small and micro enterprises enjoyed low-interest loans driven by policy support, but the actual beneficiaries were still primarily in specific industries and policy-encouraged areas, with widespread occurrences of "unable to borrow" or "not enough borrowing." When considering risk, banks would rather forgo policy incentives than lower their own liquidity safety cushions.

Therefore, the ease of financing for the real economy does not simply depend on the trends in interbank interest rates, but is closely related to banks' risk control logic, regulatory guidance, and the credit structure of enterprises.

Can case studies reveal the mechanism loop of "tightness—transmission—cost"?

Taking the phase of financial deleveraging in China in 2017 as an example, interbank market interest rates continued to rise, with the 3-month Shibor once climbing to 4.7%, approaching the levels seen during the "cash crunch" in 2013. Under the pressure of soaring funding prices, large banks alleviated liquidity tightness by tightening credit to non-core clients, reducing non-standard investments, and cutting back on trust channel businesses, significantly weakening their willingness to expand credit.

This trend quickly transmitted to the real economy. Some private enterprises relying on short-term revolving loans faced funding chain breaks, and restrictions on non-standard financing led to project standstills, with industrial investment growth significantly declining. According to data from the National Bureau of Statistics, the growth rate of fixed asset investment in the second half of 2017 fell from 8.9% at the beginning of the year to 6.3%.

In contrast, at the beginning of the pandemic in 2020, the central bank ensured ample liquidity in the interbank market through targeted reserve requirement cuts and structural relending, with the 7-day reverse repurchase rate dropping to as low as 2.2%. Despite macroeconomic pressures, corporate financing rates declined simultaneously. According to central bank data, the average loan rate for enterprises in 2020 decreased by nearly 0.6 percentage points year-on-year, marking the largest decline in recent years.

These two contrasting cases indicate that there is indeed a mechanism loop of "tightness—transmission—cost" between interbank liquidity and real financing costs, but whether this loop is activated and whether transmission is smooth still depends on the timeliness of policy adjustments, the targeting of structural tools, and the coordination of bank behaviors.