Financial Risks In The System Transition - Change Based On Financial And Monetary System

There are two aspects of limitations, which affect the definition of Financial Risk: First is the limitation on the major player in the Financial Risk. It is believed that financial organizations are major play in the financial risk. They are likely to put their assets and credit standing in danger due to changes in the environment, mistakes in decision-making or other reasons. The second limitation is blaming the financial system for the loss caused by uncertainties. It is believed that it is the economic reasons or defections of the financial system itself and the disorder in its performance that intensified the contradictions in the financial system, enhanced the uncertainty and poses destructive threat to the stability of the overall financial system. The general meaning for financial risk is the possibility of loss such as assets, credit standing caused by various factors generated in the process of financial activities participated by various economic entities. The fiancial risk in China can be divided into two kinds. One is the risk generated in the environment of market economy; the other is the risk produced during the process of economic reform and transformation and caused system transformation and relating factors such as friction and mis-connection. For the financial risk generated during the operation of common market economy, it is unavoidable. And the solution to the problem is to disperse the risk and the on-time prevention of the further escalation of the risk. As for the financial risk in the system, economic policy is needed to adjust the structure of the system, build up and improve the system. The financial risk in an economy of transformation usually appears in the form of friction, mis-connection and vacuum, which lead to the lack of regulation in the performance of various economic players of the government, financial sectors, enterprises and the public. Under the drive of profit, while all the player seeks to maximize profit, they all push various contradictions and risks to outside, mainly to the state-owned commercial banks. When a sound bankruptcy mechanism is yet to be built, the risk to enterprise operation finally turned into the erosion to banks and a ? summary large amount of ill-managed capital is thus resulted. in the essence, it is the banks that shoulder the cost of economic ttansforrnation. If banks are unable to digest those ill-managed capitals, the credit foundation of banks will be shaken and the bank抯 ability to pay will be inadequate. Once this financial risk in system is resulted, it is even harder to control the risk than before the transformation. During the gradual transformation in China, the changes of status of finance play an important role. The evolution of the status of finance during the social reproduction process is on one hand the force pushing the marketization reform forward, one the other hand~ it also reflects the demands of the entities of different interest in marketization reform. The marketization process is the process in which the traditional financial function is continuously weakened and financial efficiency is constantly improved. However, with finance becoming the core of modern economy, while economic efficiency is constantly reflected through financial efficiency, economic risk is also accumulated in the financial area through diverting and transferring. Financial risks bec...