Research Of Foreign Policy-Oriented Financial Institutions

Based on a strict definition of policy finance and policy-oriented financial institution, this paper applies the common economic theories to comparatively analyze policy-oriented financial institution system in the U.S., Japan and Korea with its main roles, business areas and operating manners. Our research shows that the policy-oriented financial institution plays an important role in the modern financial system, and it is not an exclusion of market economy. The policy-oriented financial institution is not doomed to failure. If governments provide powerful backings and proper regulations for policy financial institutions, these institutions could maintain sound and safe business operation and avoid becoming big burdens or even financial crisis for governments. Meanwhile, the governments and policy-oriented financial institutions should flexibly adjust their missions and business areas to the economic environmental changes. The governments should permit and encourage the policy institutions to participate in market competition and operate according to the market principles. The paper also points out that China must find its own way to reform and develop its policy-oriented financial institutions under the circumstance of economic transition. Although China's financial sector reform should give priority to the development of the capital market and indirect finance, indirect finance through the banking sector, the financial intermediary, will still dominate China's financial system in a relatively long turn. Banks'loans will remain the primary channel of the enterprises funding. Finally, we will give our policy suggestions about the further reform of China's policy-oriented financial institutions. The paper comprises eight chapters as well as an introduction at the beginning. The first chapter provides a brief introduction to the policy finance and the policy-oriented financial institution. At the first, we define the concept of the policy finance, and point out that the unique specialty for policy-oriented financial institutions is that they focus on the government policy targets. The policy finance is not an exclusion but natural development of market economy. The failures of some policy-oriented financial institutions, frequently happened when they provided the non-financial public goods, could not tell the whole story of policy finance. Based on a thorough review of typical policy-oriented financial institutions in foreign countries, we summarize these institutions'common operating manners, including the special business areas and clients, the principles of compliment, neutrality and premium, the government credit backing, the special channels and principles for loans underwriting, and independent legislation, etc. Chapter Two focuses on the common theories of policy finance. As we all know, financial market is the basic mechanism for financial resources allocation in the market economy. However, due to the information asymmetry, public goods insufficiency and monopoly existing in the financial market, the financial market is not perfect, which explain the reason that policy-oriented financial institutions exist. In developing countries, the widely existed "two-dimension"phenomena in financial system makes economic development followed by "growing pains", and long investment insufficiency becomes a bottleneck constraining their economic growth. Thus, the governments choose to establish policy-oriented financial institutions, and use a selective credit rationing approach to raise a huge amount of funds and put into these bottleneck industries and regions. To protect the security of financial sector and establish financial infrastructure is another consideration for the governments to develop policy-oriented financial institutions. The monopoly and extra profit definitely have a negative influence on the efficiency of financial sector and real economy, making Pareto Efficiency impossible. The theory of financial constraint has proved that governments should intervene inthe process of financial development. Chapter Three, Four and Five share the same structure. We first introduce the financial system in the U.S., Japan and Korea, and then give a comparative analysis of the policy-oriented financial institutions in these countries. In the U.S. the policy-oriented financial institutions only play a complimentary role in the financial system, and they tend to use financial market to realize their policy missions. In Japan, the banking sector dominates its financial system, and the policy-oriented financial institutions have more extensive effects on economic development. Korea, although learn a lot from Japan, gives its priority to develop financial market and direct finance. In the past, Korea's government adopted active policies to intervene in the financial development, and more than half of its financial institutions were owned by the state. Recently, however, the government'interventions have been limited, and some policy-oriented financial institutions began to transfer into commercial ones. Chapter Six analyzes the relevance between financial crisis and policy-oriented financial institutions. This chapter analyzes the factors that triggered Asia financial crisis, and then compares the differences between Japan and Korea in crisis. The post-crisis situations in these countries will also be presented. Based on the financial crisis analysis, we try to find out the relevance between policy-oriented financial institutions and financial crisis. The result of the research may help us eliminate misunderstandings about policy-oriented financial institutions. Chapter Seven mainly focuses on the successful pattern of the policy-oriented financial institution. We find that the soundness and safety of the policy financial institution depends on many conditions. The exterior conditions include the macroeconomic stability, clear legislation, efficient supervision, powerful government backing, adequate capital, well-established market system, flexible adjustment to the environmental changes, and operation according to the market principles. In the interior, the policy-oriented financial institution needs to establish prudential risk management, clear responsibility centers and effective incentive mechanism, and maintain profitability to some extend.