The Reform Of Bank Privatization: Theory And International Experience

The commercial banking reform has been the core step in Chinese reform in financial system, and in which the reform on the old ownership system is one of the most important aspects. And in China , government has taken a numbers of measurements to strengthen the commercial banking system, including the ownership reform and the reform on the supervision system. But it is obviously that all these measures have not been proved to be effective.There are lot of research on the banking system reform in developing countries and transition countries. All the research works are excellent, but at the same time; the conclusions seem to be a little bit disappointed. All these academic research works demonstrate that only the reform on the ownership, which implies the privatization of the banking system and the strengthening of the supervision mechanism, will not bring about a health banking system.This paper begins at the discussion of the incentive mechanism of private property rights and its advantage over the other types of ownership. We insist on a very important idea that the reason why private ownership is more incentive than the other types of ownership lies in the nature of excludability, dividability and transferability adhere to the private ownership. Therefore, once one of all these three characteristics is limited, the incentive mechanism of a private right will eliminate. This is the precondition of the incentive could come into effective.Established on the discussion of the private property rights, first of all, the paper discussed the supporting institutions to protect the private property rights; they are the institutes protecting the freedom of signing contract, the enforcement of the contract. Then, we mentioned that because of the existence of the problem of principle-agent problem, even the private ownership will not realize the maximum value of owners of the bank. Thirdly, as far as the executive of the private property rights on the assets of banking system, to limit the externality of private rights is also to the same importance. Therefore, having the ownership reform enable the bankers to be more incentive, having the professional manager market oversee the behavior of the managers and having the strong supervision prevent the bankers from taking too much risk. All these three parts come into the overall framework of banking system reform. By comparing the effectiveness of the official supervision and regulation with the market discipline, we find that the constraint coming from thebeneficial entities, such as stockholders, creditors and depositors is always more effective than the supervision and regulation from official administrations. So the market discipline is more important than official supervision and regulation in the capital market and human resource market. Besides of the theoretical analysis of reform in banking system, the paper looks into a numbers of empirical tests of the practice in banking system reform undergoing in numbers of developing countries and transition countries. All these data and conclusions all support the ideas we shown in the pervious analysis.The goal of this paper is to illustrate the internal mechanism of incentive adhering to the private property rights and the external supporting institutions to guarantee the advantages of property rights. The privatization of banking system is far more complicated than selling the assets to the private entities. The method of the privatization will have large effect on the result of the reform.