A Study On Legal System Of Corporate Governance For Commercial Banks

Since reform and opening, China has been promoting the financial system reform. As the direct finance in our country developed in backward, the banking system reform has been the core task of financial reform. After years of continuous efforts, China has initially established a modern commercial banking system. However, it is undeniable that a modern commercial banking system reform has not been completed. Financial reform which including improvements in corporate governance and the construction of modern commercial banking system is still an important issue in a long period of time. In order to provide some valuable views, this paper used standard analysis, comparative analysis, case studies and other research methods to study on the legal system of corporate governance for commercial banks.In essence, the commercial banks are engaged in a modern enterprise organization of credit management, which means that commercial banks in both a modern form of enterprise organization, and it is also engaged in special organization of financial services. Therefore, a comprehensive analysis of corporate governance for commercial banks should start from two perspectives. Firstly, we should grasp the principles and mechanisms of modern corporate governance. Like the business enterprises, commercial banks in any country would be subject to the "Company Law","Securities Law "and other legal constraints, there are many aspects of corporate governance in common with other types of businesses. Secondly, we should grasp the specificities of commercial banks and corporate governance, and understand the corporate governance differences between commercial banks and other types of business enterprises.The scholars have some differences in defining the concept of corporate governance, and economists andJurist are not exactly the same view. In general, economists tend to think that the purpose of corporate governance is to solve the problems by the separation of ownership and management, including distribution of power and the corresponding incentives by shareholders and general meeting of shareholders, directors and board of directors, corporate executives. The jurists are more inclined from the principles of the powers, duties, obligations, the balance between the interests, they think that the core of corporate governance is to constraint and incentive agents for better fulfilling the trust responsibility and protecting the client's interests. Although the theory history of corporate governance is not very long, it has developed rapidly and formed a series theories, such as principal - agent theory, stakeholder theory, classical and modern stewardship theory, property rights theory and super-hypothesis theory.Effective corporate governance requires a range of operating mechanisms for the security. Overall, the main corporate governance mechanisms can be divided into internal and external of supervision and restriction mechanisms. Internal mechanisms include company management supervision and regulation mechanisms by shareholders and general meeting of shareholders, directors and board of directors, supervisors and board of supervisors, as well as internal balances system by shareholders, board of directors, supervisors. External mechanisms include creditors of the camera governance, product market competition, restraint mechanisms, capital market competition, the restraint mechanism, the manager constraint mechanism of market competition, independent auditing mechanism to evaluate the constraints, legal constraints and government intervention mechanism.From the view of new classical economics, corporate governance is completely able to solve their own problems. Because of financial contracts between experienced issuers and investors, once investors realize that the risk of being deprived, they would punish those who fail to disclose relevant information and the contract their own behavior.Therefore, the effective market mechanisms can effectively protect the interests of investors and thus it is unnecessary to be legally binding and intervent on corporate governance. However, the practice of corporate governance has shown that a variety of contract signed and enforcement of protecting investor needs laws and regulations. For this reason, most countries and regions have established a more systematic legal system on corporate governance.The content of the legal system of corporate governance is very wide, which includes the right of shareholders, the shareholders decisions on major issues, the right of shareholder returns, the majority shareholders principles and minority shareholder rights protection, the judicial relief system's for safeguard the interests of shareholders, the legal position of the board of directors, the board composition and internal checks and balances, the board of checks and balances and incentives, the obligations and breach of duties of directors and other legal system of accountability, the monitoring position of the company's supervisory board, the legal position of senior management, and shares information disclosure and financial audit system.The countries and regions who have effectiveness of corporate governance formulate strict provisions of the legal system.The Companies Act, the Companies Ordinance and other laws and regulations in various countries are binding on the commercial banks. Corporate governance for commercial banks have many commons wih other business enterprises. Compared with other industrial and commercial enterprises, commercial banks have specificities in capital structure, transparency of business activities, systemic risk and the degree of government regulation, which directly affects the effectiveness of corporate governance. Therefore, corporate governance of commercial banks require special protection of the legal system. Before financial liberalization, each countries carry on legal system and government intervention to constrain the discretionary space and avoid the abuse of their rights on commercial banks. With the advance of financial liberalization, many financial regulation was gradually abolished, many countries gradually adjust the way of financial regulation. In order to improve the effectiveness of commercial banks, they pay more attention to the reasons of corporate governance failure and find appropriate measures. In detail, they develop and implement a series of legal system to strengthen the commercial bank information disclosure, encourage commercial banksto strengthen their internal corporate governance, promote deposit insurance system in coordinate with stability of banks, regulate treatment measures for banks into financial difficulties and promote diversified banking market competition.For many transition countries, the task of legal system construction is more complex to the corporate governance of commercial banks. The content mainly includes three aspects. Firstly, they should standardize the legal system for property rights reform of commercial banks. Secondly, they should standardize the legal system for Internal supervision and control mechanism of commercial banks. Thirdly, they should standardize the legal system for information disclosure of commercial banks.To Improve corporate governance is an important part of commercial banks system construction in recent years. At present, China has initially established a modern commercial bank corporate governance framework. Commercial banks reform and the introduction of strategic investors made significant progress in investment, internal governance mechanism has been initially established, pay system reform continue to make new incentive mechanism, competitive commercial banking market structure has taken shape, the legal system related to corporate governance system is basically formed. Of course, due to various historical and practical reasons, there are still many problems to be resolved. National invisible insurance has serious negative impact on commercial banks, and ownership structure also has obvious problems, such as the efficiency of internal constraints are relatively low, incentive mechanism for senior management is still not reasonable, constraints of external governance mechanism are also relatively low. So it is an important task to promote corporate governance reform and legal system construction.There are many problems should be solved to improve corporate governance of commercial banks in the legal system. The current urgent work includes seven aspects: First, we should realize the transition from invisible deposit insurance to clear deposit insurance legal system. Second, we should adjust the legal system of the position of shareholders and protection of the rights of shareholders. Third, we should adjust the legal system of the position of the board of directors and board of internal checks and balances mechanism. Fourth, we should adjust the the legal system of the functions of the Board Supervisors. Fifth, we should improve incentives of senior management in commercial banks. Sixth, we should improve the legal system of information disclosure of commercial banks. Last, we should improve the implementation efficiency of legal system.