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The Legal Issues Of Supervision Of Bank Risk In Financial Globalization Research

Posted on:2008-07-05Degree:DoctorType:Dissertation
Country:ChinaCandidate:H J LuoFull Text:PDF
GTID:1116360218461368Subject:Economic Law
Abstract/Summary:PDF Full Text Request
The purpose of this dissertation is to evaluate the current development of financial governing-related laws and regulations system in China. We focus on the issues as the following: (1)with the development trends of financial globalization and modernization, can the financial system in China meet the needs of its economic and trade growth?(2)Are its governing laws and regulations able to sustain the effective operation of the financial system and induce the smooth progress of financial innovation? And, (3)are they able to maintain the stability by effectively regulating the domestic and foreign financial institutions and prevent the contagion of financial crises?Empirical analysis proves that financial development has helped the growth of per capita income, the formation of physical capital and the improvement of economic efficiency. The enhancement of financial services and governance not only protects the customers/consumers'welfare, but also facilitates the orderly competition and stability of the financial industry. Facing the trend of financial globalization, developed and developing countries alike are taking steps to deregulate their domestic financial practices as well as the cross-border capital flows. At the same time they encourage the globalization of their financial institutions. In all these actions, it is expected that their financial policies and practices can meet the rules of game of the global financial development. Yet the financial deregulation increases the risks of the customers, services providers and even the whole economy. It also adds the complexity to financial governance and reduces the autonomy of the financial policy-makers. The increased financial risks may also add to the spreading scope, speed and frequency of financial crises.The 1997 Asian financial Crisis started in Thailand from the vicious manipulating practices of several international speculators. But it is Thailand's economic structural disorder, the open yet low-regulated financial market, and the economic bubbles that fueled the eruption of the financial disaster, which later on spread throughout Malaysia and Indonesia, whose financial institution were similar to Thailand's. As for South Korea, with the close ties between business groups and financial institutions and the quick expansion of these giant business groups, the recession caused by the financial crisis had made the business groups not able to sustain and turn to bankruptcy. Korea's financial institutions therefore had to bear heavy burden of bad debts and thus caused the rapid depreciation of its currency, followed by the collapse of the stock market.It is the defects of national financial institutions, the lack of completion of international monetary pre-caution system, and the irregular fluctuations of foreign exchange rates that make IMF and other international monetary mechanism crippled in maintaining the international financial stability.In order to reduce the financial risks and strengthen the international financial system, several measures have been undertaken, such as sharing the expenses of IMF bail-out funds and loans among member counties, the establishment of the Bank of International Settlements(BIS)to conduct the international financial settlements among central banks and the formation of Basle committee to propose the governance principles and the minimum capital requirement of the multinational banks. The new run of WTO negotiations also includes in its agenda the issues of gradual openness of financial services and other services. The Basle committee has proposed the Basle Capital Accord(II)for member countries to apply so that their capacity of encountering financial crises can be strengthened.The Basle Capital Accord(II)includes three pillars, which are minimum capital requirements, processing steps of financial governance and market control mechanism. The United States has adopted them through a two-rail system. The large scale core banks and the banks with frequent international transactions should apply these new regulations into their practices by January 1, 2007. Other smaller-scale, local financial institutions are allowed to postpon the adoption. Germany, Taiwan, Hong Kong and the United Kingdom are also taking steps in graudual revision of their financial governance system but with different standards of calculating capital requirment and risks.Since 1978, China starded the establisment of modern financial system and governance offices with separate divisions of financial services and institutions. In 2003, a new division of financial policies was adopted. The People's Bank performs the functions of a central bank. The Financial Goverance Council, Stock Exchange Governance Council and the Insurance Governance Council carry out the duty of financial governance for different types of financial institutions.The financial governance system in China bears the features of two-step walking and two-rail schemes. The management of market entrance is established according to the Basle core principles. The management of financial assets and operations as well as the bad debts recognition are reinforced. New laws and regulations are legistated for the administration of electronic information and web banks. The auditing of on-spot and not-on-spot business operations are strengthened. The information disclosure and the reliability, completeness, and in-time of the information are to be strictly monitored, so as the opertions of the internal control and internal auditing of the financial institutions. On the other hand, China has gradually opened its domestic financial market by allowing the establishment of foreign banks and removing the restrictions of the businesses that foreign banks can conduct.The conclusions of the dissertation are as the following. At the aspect of international finance, we found that the economic and trade development excel financial development though there have been a rapid growth of new varieties of financial products. International investment and speculations have caused the drastic fluctuation of exchange rates and interest rates. We also observe that the occurrences of financial crises have increased in both frequency and scale. The developing countries face the difficulties of financial services governance and the problem of over-competition. Although many international organizations have been established to provide assistance and solutions to these challenges and problems, they cannot meet the different needs of each individual country. As for the development of the financial governance system in China, the requirements of the Basle Capital Accord(II)are too complicated to be prevalently applied by the end of 2006. The four largest commercial banks heavily rely on government support and believe that they are too big to fail. The current financial governance focuses on the aspect of operational governance and needs to promote the functional governance. It is also essential for China to build the institutions of pre-caution, external evaluation and deposit insurance. The current regulations regarding the management and information exposure of the listed companies cannot go well with the market operations. The insufficient personnel with the expertise of finance, information and international affairs have hampered its financial development.The suggestions of the dissertation can be divided into two aspects. The first one is for the government administration to stabilize the currency value, to consider establishing regional financial center, to speed up the modernization of financial and governance systems and to shape a stable and excellent financial market. It is also essential to improve the application of international financial governance and strengthen the international cooperation and coordination. As for the aspect of financial and governance institutions in China, it is suggested that they should promote their operational competitiveness in financial services. The improvement of financial governance should base on the Basle Capital Accord(II). Monetary policies should be applied by indirect measures instead of direct ones. Commercial banks should increase their own capital and continue to cancel bad debts. The restriction on the market entrance of private-owned commercial banks should be lifted. In addition, the internal control, auditing and monitor should be strengthened and the new systems of pre-caution, external evaluation and deposit insurance should be established.
Keywords/Search Tags:risk management, internal control, capital sufficiency
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