On The Financial Holding Company Model

Ever since the latter half of the 20th century, the economic integration, globalization and the internationalization of capital flow have become an unstoppable trend. The cut-throat competition among American and European institutions led to the rise and development of financial holding companies. During this process of worldwide development of financial holding companies, mutual promotion and expansion have been achieved through learning from each other. The joint forum of financial groups, established with the support of the three major international supervision and regulation organizations, namely, Bassel Banking Supervision Committee, International Securities Federation, and International Insurance Supervision and Regulation Association, issued The Supervision and Regulation Principle for Financial Holding Companies in 1999. By the definition of the above-mentioned Principle, a financial holding company refers to a financial group which provides service, under one single controlling right, in at least two of the three financial industries-banking, securities and insurance. Given the differences of national conditions among various countries, the development of financial holding companies in each of the countries differs, in one way or the other.With the development of the financial industry, the increasingly fierce competitions in the international financial market will be inevitable so much so that the predicting of the management risks tends to be more and more unlikely. In order to minimize management risks and maximize profits gained, efforts must be made to diversify the assets and liabilities management of the commercial banks and to rationalize their business structures. Serious considerations should be taken by commercial banks, either out of avoiding risks or guaranteeing returns, to implement comprehensive management to the largest possible extent, to constantly expand business scopes and types and provide new ways and methods of transactions in conformity with the ever changing demands of the market and their clients. The financial holding company model is the answer to the trend and requirement of the comprehensive and extensive development of the commercial banks. In line with the development trend of international financial market, comprehensive management is the inevitable choice provided to China's financial industry management model in the future. The financial holding company model will be the best possible organizational structure for our future financial development. With the increasingly deepening of financial institutional reforms in China and its entry into WTO, financialholding company model will surely be the direction for which China's financial institutions are heading, and it will also be the major method with which China's financial institutions are going to sharpen their competitiveness.Though at present there is no clear defining of financial holding companies yet so far as China's legislation is concerned, there does exit this type of company in China. The history of the development of financial holding companies is anything but long; historically speaking, ever since 1980s of the 20th century, there has existed some "quasi-financial holding companies" like CITIC and China Everbright Group. During the latter half of the 1990s, Pin An Insurance Company has developed into a typical financial holding company, while the four major solely state-owned banks are in the process of shifting to financial holding companies.Given that our financial holding company system is still at its initial stage of gestation4 and development, theoretically speaking, the focus of the experts and scholars is mainly on the areas of the law making concerned with the financial holding company's formation and how to control, prevent and mitigate financial risks, and thus a solid theoretical foundation has been provided. In practice, though China is the only country in the world which adopts financially divided operation and supervision, some related laws and policies leave much room for financial institutions, fo...