China's move to reduce its benchmark lending and deposit rates also weighed on investors.
The government continues to set a ceiling on deposit rates and a floor on lending rates.
Although providing relief to companies, slashing lending rates without cutting deposit rates would further dent bank profitability.
Deposit rates were raised to 2.75%, but in real terms savers get back less than they put in.
Since mid-2004, American interest rates have risen by three percentage points, while Chinese deposit rates have barely changed.
Lower deposit rates might tip the balance for some savers wondering whether to put their money into shares.
China's state banks have long been accused of benefiting from low deposit rates, which helps to inflate their profits.
He also said the central bank was "technically ready" for negative deposit rates.
Rate-setting technocrats cannot permit such a large reduction unless they also drive down deposit rates by a similar amount.
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The main problem is a narrowing spread between home mortgage rates the bank collects and deposit rates it pays.
Yet they cannot reduce deposit rates without triggering even more outflows of cash.
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China announced its interest rate cut for both interbank lending and deposit rates to 6.31% and 3.25%, respectively, effective Friday.
Moreover, further cuts on local-currency (yuan) deposit rates are feasible, even though they are already lower than equivalent dollar-deposit rates.
In fact, he looked like he was trying to appease popular anger toward low deposit rates, high fees, and denials of credit.
Bank deposit rates are lower than the pace of inflation, meaning savers effectively pay banks for the privilege of handling their money.
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Risking stock ownership for a 1.90 dividend yield does not look so bad when bank deposit rates are in single digit basis points.
Since deposit rates are, by law, low, and the spread between them and lending rates quite large, the growth has been enormously lucrative.
They are typically short-term investments that banks market as a high-yield alternative to bank deposit rates, which are kept low by the government.
Last year, the government began breaking up the local cartel in savings and time deposit rates, leading to increased competition for retail funds.
However, households in China will continue to suffer from artificially low deposit rates, which mean they earn very little return on their savings.
Despite the increase, deposit rates remain below inflation with the result that funds have surged out of the banks and into stock and property.
State-owned banks still dominate the financial sector and are kept profitable by a positive spread between loan and deposit rates dictated by government policy.
The state banking system, for instance, keeps deposit rates low so that it can provide cheap credit to over-leveraged state enterprises and cash-strapped local governments.
Deposit rates in banks are actually below the rates of inflation.
It cannot relax its grip on lending and deposit rates and it cannot direct the banks to begin another round of lending to restart faltering growth.
In addition to taxes and fee incomes, government collects revenues from the population in other less obvious forms, such as the fixe low deposit rates in China.
With banks' deposit rates so low at 2.5% for one year, the rate is below the level of inflation banks had no trouble finding investors seeking a higher return.
The stock market is more volatile in China than it is in the U.S., and interest rates in China are low, around 3.5 percent for deposit rates.
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Yet lower deposit rates, the government fears, might tempt depositors to take their money out in search of higher returns elsewhere threatening a disastrous unravelling of the banking system.
Simultaneously, the ceiling on bank deposit rates was raised to 1.1x from 1.0x the benchmark rate, and the floor for lending rates was lowered to 0.8x from 0.9x.
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