1. Report Industry Investment Rating - No relevant content provided 2. Core Viewpoints of the Report - "Improving the deposit reserve system" is the established policy direction of the central bank, and there is a need to continue to pay attention to it in the long - term [7] - The 5% "red line" for the legal reserve ratio is a "consensus" rather than an "iron law" of previous central bank operations, and there is no clear theoretical framework for setting this red line [7] - There is a certain urgency to break the 5% red line, as it may limit the function of total reserve - requirement cuts in the future [8] - The root of whether there is a bottom line for the legal reserve ratio lies in the "relatively scarce monetary policy operation framework", and the red line can be lower from the perspective of liquidity adjustment [10][11] - In the long - term, the space for reserve - requirement cuts is relatively limited, and the long - term liquidity regulation framework has been established [13] - In the short - term, more attention is paid to the feasibility of restarting the payment of RMB deposit reserves with foreign exchange positions [15] 3. Summary According to the Directory 3.1 How to Improve the Deposit Reserve System - Policy Direction: "Improving the deposit reserve system" is the central bank's established policy. After the Two Sessions, the central bank mentioned it, so it still needs attention in the long - term [7] - Red Line Nature: The 5% red line is a consensus from previous central bank operations, not an iron law, and there is no clear theory for setting it [7] - Urgency of Breaking the Red Line: Although the current weighted legal reserve ratio is 6.2%, if the red line is not broken, future reserve - requirement cuts will be limited to state - owned large banks, restricting the function of total reserve - requirement cuts [8] - Root of the Red Line: The legal reserve ratio exists mainly to "create" liquidity demand that the banking system cannot meet by itself, and its bottom line should be considered from the perspective of liquidity adjustment [10] - Lower Red Line from Liquidity Perspective: Based on the scale of deposits, growth rate, and other factors, the red line of the legal reserve ratio can be lower because of the linear growth of currency issuance demand [11] - Limited Space for Reserve - Requirement Cuts: In the long - term, the space for reserve - requirement cuts is limited, and the long - term liquidity regulation framework has been established. The channels for the central bank to inject liquidity are more diversified [13] - Feasibility of "Foreign Exchange Reserve Payment": Historically, the central bank has had the operation of allowing banks to pay RMB deposit reserves with foreign exchange. Under the current background, restarting this mechanism may have an effect similar to a "reserve - requirement cut" [15]