Research On The Effectiveness Of Banking Supervision Based On Incentive Compatibility

The stability and efficiency of the banking system has great influence on a country’s economic growth and social welfare. The global financial crisis, which caused by the sub-prime crisis in the United States in 2008 has a serious impact on the economy over the world, and the bank system is the key part of the crisis. The huge harm highlights the extreme importance to improve the security and stability of the banking system, also makes the countries of the world reflection on effective supervision of banking.Since the late 70’s and early 80’s in twentieth Century, the incentive theory is absorbed into the Western regulatory economics. The incentive regulation try to solve the regulation problem under the principal agent theory, and design a mechanism and system to achieve optimal regulation. The incentive regulation makes the target of the two sides consistent, and includes the bank’s internal management and marketing constraints into the scope of regulation. These two kinds of strength guide to achieve the supervision objectives. The incentive compatibility of banking supervision has been attracting national authorities. Especially in the context of the financial crisis, a new round of regulatory reform initiatives have largely reflects the incentive compatibility requirements. Based on the incentive compatibility theory of banking supervision and regulatory practice, discusses the validity of the assessment, to a certain extent, rich the theory of banking supervision, on the other hand, provide a useful reference for enhancing the effectiveness of banking supervision to promote China’s banking regulatory reform.Based on the regulation economics, management economics, information economics, financial regulation and game theory and other disciplines, to effective bank supervision as the main line, combined with China’s banking supervision practice, the paper reviews the relevant theoretical research about the domestic and foreign bank supervision of incentive compatibility, then analysis the combination of incentive compatibility and banking supervision. On the one hand, using the empirical analysis method, the paper assess the effectiveness of banking supervision from the requirement of capital and market discipline; On the other hand, the paper overall measure effectiveness of supervision in recent years from the perspective of cost and benefit. At last according the issues and challenges from financial crisis, the article put forward a sound incentive compatible regulation mechanism, the path of ascension, the methods and measures of the effectiveness of banking supervision.The empirical analysis shows that: Our capital regulation improve the capital adequacy ratio of commercial banks, reducing the risk of commercial bank. However, with the passage of time, most of the bank’s capital adequacy are more than 8%, and since 2010 the capital adequacy ratio are more than 10%, the effect of regulation of capital regulation and effect generated by the reduction in risk are gradually weakening. Depositors tend to choose large scale commercial bank, even the non-performing loan rate is higher, the profit rate and the capital adequacy ratio is lower. This deposit market not mature is likely to be for the public "too big to fail" expected. This shows that our deposit market is not mature, in the dissemination of information is not valid, the market restriction from commercial bank depositors is weak. From the cost income analysis verified that, Supervision of bank income is greater than the cost of banking supervision. But the contrast of "reduction of financial crime" of this goal, the financial crimes appear "double increase", we can see that social welfare loss is large。It means China’s practice of incentive compatible regulation on capital adequacy and market constraints is effective to a certain extent, market discipline and internal control playing the same role. In conclusion, China’s banking supervision of incentive compatibility is not very high, so the bank supervision system needs to be improved, and the importance is to clarify the position, to strengthen differentiated regulation, to combination bank’s internal management, to strengthen market discipline and regulation. And finally to build a incentive compatible supervision system under the new situation.