Government Regulation Of Bank Mergers And Acquisitions

With the promotion of globally economical unification and deregulation of financial regulation, global bank merger and acquisition (M&A) occurs continuously. With lots of transnational banks gradually aim to buy out financial institutions in Asia and China instead of other countries and regions, China in the transition from newly-developing market economy to mature market economy is inevitably merged in the global M&A wave.The bank M&As in China can be classified into domestic M&As and foreign investors'M&As. The practice of domestic M&As has started since 1995 and most of the early practice is dominated by governments in the aim of stabilize the finance situation and M&As are acted as means of dealing with troubling financial institutions. So such M&As are called quasi-M&A. Foreign investors merging and acquiring Chinese banks is to buy a share of Chinese banks rather than acquiring the controlling rights of Chinese banks in view of the relative restriction on share ratio. It's 12 years since Asian Developing Bank (ADB) bought a share of China Everbright Bank in 1996. With the end of transition period of entering WTO, Chinese banks will try to obtain economy of scale and economy of scope by M&As and expand business fields and markets by mixed M&As and M&As overseas on the basis of marketable choice. Foreign investors will enter into Chinese financial industry by merging and acquiring Chinese banks with the aim of occupying markets and controlling the banks. So domestic financial markets and capital markets will be surely confronted with a large scale of changes and innovations. Researches on bank M&As in China are significant.Based on the previous literature, theoretical explanation, this article explores the systems and problems in the regulation of America, European Union and Japan, and compares their similarities and differences. And then the article analyzes the types and characteristics of bank M&As in China and relations between regulation and M&As, and discusses the problems in the regulation on bank M&As. Finally the article puts forward some proposals on improvement of regulation system and means.The experience of regulation on bank M&As by west mature market economy countries shows that government regulation plays an important role in bank M&As. Rational and effective regulation can guide bank M&As and improve social welfare by avoiding those M&As with the possibility of substantial lessening of competition. Over-intervention and protection don't help to form competitiveness of banking and long-term stability of financial and economic situations.The regulation on bank M&As of west mature market economy countries has the following characteristics. First, market economy is essentially law economy and government regulate the bank M&As by constituting law and supervising its implementation. Secondly, governments regulate bank M&As by constituting the anti-trust law and other laws. Thirdly, since each country's situations on society, economy, politics, history and etc. is different, regulation on bank M&As differs among countries and at different periods. Fourthly, many countries has begun to deregulate domestic M&As in recent years while still implementing comparatively strict policies on foreign investors'merging and acquiring domestic banks.Chinese bank M&As have different system conditions with the west. There are integrated laws and rules, developed financial market and transparent property right system in the west while there's not in China. Comparing to the bank M&As in mature market economy which maximizes the profit, bank M&As in China maximize the government utility instead of bank profit and government has deciding rights in bank M&As in China.First,in the past years, state-owned and urban commercial banks have provided many convenience for state-owned enterprises and local economy and thus have suffered lots of historical debts. So in the process of introducing foreign investors, central and local governments have to pay for the historical debts by coping with bad loans.Secondly, bank M&As are the results of game theory. Governments of province and city make choices to maximize their own utility instead of bank profit. Intervention of government maybe bode no good for future performance of banks. Thirdly, government appoints the bank that takes over when dealing with troubling banks, which resolves systematic risk, but perhaps enlarges the risk of operation of the acquiring bank.Fourthly, there are some problems on financial capital evaluation and national economic safety when foreign investors'merge and acquire Chinese banks, which puts forward challenges on supervisions systems, law systems, policy-making and implementation.Bank M&As are a kind of transaction of property rights in fact. Over-invention of government may distort the economic efficiency while it may also do harm to financial safety without any regulation. The regulation ability of a nation reflects the ability that government manages economic activities and the ability that government implements functions of macroeconomic management and stabilizes economy and conquers financial crisis. It's critical that government should change from administrative invention to regulation based on laws, from total protection to open markets to the outside, from strict restriction on foreign banks to restriction by system and from unprincipled protection on troubling banks to disposition based on cost-benefit analysis. At the same of deregulation, strengthen supervision and at the same of change governmental function, improve efficiency of regulation.In conclusion, we should implement effective regulation in order to guarantee the market activities, protect stakeholders and ensure financial safety and stability.