Research On The Development Model And The Risk Management Of Financial Holding Company

The development and reform of China's financial industry have made significant achievements in Three decades of reform and opening-up. The entire financial ecosystem has changed dramatically. The reform of state-owned commercial banks, the exchange rate formation mechanism and the rural credit cooperatives, the implementation of the correct monetary policy, striving to maintain the stability of the currency and financial stability of RMB, the construction of the capital market-based system, and the perfection of opening-up in the financial sector, strengthening foreign investment, introducing of foreign strategic investors are all successful. The effect that China's financial industry services for economic and social development, adjustment of economic operation and implementation of the macro-control is growing. As the gradual integration of China and the world economy, China financial industry reform and development will be further influenced by the development of the world's trends. At present, the trend of the finance globalization is being strengthened constantly, the world's financial markets become more closely linked, the degree of the internationalization is becoming higher, the financial innovations change with each passing day,the trend of development of comprehensive management is in continuous evolution, and the mutual penetration between diversified industry are increasingly develop. As the increasingly competitive international finance, cross-border capital flows have been expanding and the uncertainties increase. In this new situation, China's financial industry is at an important period of transition and development that faces both the new opportunities and more serious challenges. In this great background, as a young scholar engaged in the work of the central bank, I have the great responsibility to help improve academic research in strength and competitiveness of China's financial industry. So I choose the topic of this article, "the development model and the risk management research of financial holding company". I make every effort in this paper in probing theories and operating practice of the comprehensive management in china's financial industry.Financial holding company is a product of the comprehensive operation of finance industry and a kind of organizational innovation. Through the classification, integration, planning and deployment of resources, it saves cost and achieves the optimal allocation of resources. This innovative financial institution adapts to the needs of the new economy. So far from the end of the century, it has been rapidly developed at the global level. In recent years, I have been deeply impressed by this development trend of China's tremendous impact on the financial industry. With financial activities of the practice, such as that the commercial banks are involved in fund management companies, and insurance companies establish asset management companies, the integrated financial management and financial holding company in China has broken the official title. The study in this regard can not just stand on a theoretical level, but must make a breakthrough in the practical level. The author analyze the research results about the financial holding company and finds that previous studies focused on the following two basic aspects:First is analysis of economic theory, including the emergence, types, mechanisms, risks and general theory of regulation of financial holding company; Second is practice of the financial holding company, focusing on mergers and acquisitions of financial institutions, business association, unified network building, financial platform creation and collaboration and business sales channels and so on. The results of the study on the comprehensive management of China's financial industry and financial holding company made an important contribution, but it still needs further study and exploration in several aspects:First, as the emergence and development of financial holding companies are not long, especially in our country this model has not yet been formally adopted, so most of previous studies are focused on operation of foreign financial holding companies and related research presentations and the introduction of theory, there are few original research results, especially in light of the actual situation of China's financial holding companies;Second, the financial holding company is a new force in the the development of the world's financial industry, and the factors such as its own structure, business model, risk generation, and management tools are still in the process of innovation and change, therefore, many past research outcomes have lost timeliness; for example, at the beginning of this century, the comprehensive risk management approach based on the economic capital has become popular in all types of financial institutions, and some financial institutions in China have also gradually introduced such a risk management model, but the problem on the application of economic capital management in a financial holding company is rarely involved in the past research results. As a result, the relevant study on the financial holding company has not yet reached clear conclusion;Third, the purpose to study the financial holding company is to find a suitable method for the comprehensive management in China's financial industry in accordance with international successful and mature experience. From the current situation of China's financial industry, because of the lack of instructional theories based on practice it is a long way to go to establish the financial comprehensive management and the operation of a financial holding company, which are based on the financial specialization, combined with our own system environment;Fourth, the relevant institutional environment in a financial holding company is continually updated and innovated, which includes enterprise internal control system, financial system, and financial supervision system. The world financial crisis, starting from the United States and then sweeping through the whole world, brings about deep thinking and discussion on financial regulatory system, financial internal control system. It is believed that there will be great changes in the institutional environment of a financial holding company after the financial turmoil, so the study of financial holding companies is far from stop.Basing on the above four reasons, I decide to continue from the basis of previous studies, use the financial holding company as a carrier, and find a suitable way for the conditions of our country's financial industry development of integrated business at this stage. This is the purpose of this paper.The basic research target of this paper mainly focuses on the comparative advantages and special risk that the financial holding company demonstrates in the formation and development process. Research perspective focuses on three aspects: motive, risk management and external supervision of FHC, and explores the financial holding company model and the replacing of the issues of choice and risk. Research path is:the financial industry comprehensive services and financial holding company, model selection and efficiency analysis of financial holding company, the financial holding company risk analysis, the financial holding company risk management based on the internal control, the financial holding company risk management at various levels based on economic capital management, and external regulation of financial holding companies. The main conclusion of the study has made a set of policy recommendations of China's financial industry integrated business from model choosing, risk management to the external supervision to make up the defects that limited in previous abroad study and neglected our own practice of theory.The paper use the analysis method that combines positivism and norm, static and dynamic, theory and practice, qualitative and quantitative, foreign and domestic, and apply deduction, induction, comparison, modeling, empirical and other methods. As a major research tool, this paper will use the theory of multi-disciplinary:the theory of management of internal control and corporate governance; the theory of financial analysis and portfolio; financial risk theory, including the negative externalities of financial industry, risk transfer, control and monitor and other related theory; equilibrium theory of economics; constitutional economics theory; corporate governance theory; industrial economics theory of competition and cooperation; information economics on the principal-agent theory that the parties in the information asymmetry cooperate and non-cooperate(game theory), including financial holding company with the members, the company with stakeholders, members and stakeholders and so on.Apart from the introduction of the thesis, the paper is divided into three parts around the basic proposition:The first part analyses the formation of the financial holding company and the comparative advantages, including the chapter 1, and the main contents of Chapter2. Chapterl is about the study on comprehensive management and overview of the financial holding company. Discover the motive of the mixing management in our financial industry from the comparative analysis of divided management and mixing management and change of the operating system of the financial industry change; initially descript the reason that the financial holding company is currently in the leading position in the integrated business model of financial industry through the comparative analysis of comprehensive of business mode in the existing financial industry. Chapter2 is about comprehensive analysis on the comparative advantage of financial holding company. First of all, this chapter defines the conception of financial holding companies and analyses operating characteristics and different types of financial holding companies. On this basis, use the qualitative analysis to investigate the comparative advantages of financial holding company, and design a game model that based on maximizing interest of public welfare of society to further discussed financial holding company's comparative advantages. Finally, based on the research of scale economics and scope economics that the financial holding company demonstrated, I design the balanced model of the benefits and risks to quantitatively analyze synergistic effect of financial holding company.The second part investigates the special risks and risk management methods of the financial holding company, including Chapter 3, Chapters 4 and 5. Chapter3 studies the risk structure and special risks of financial holding company, with emphasis on the moral hazard and public safety network, the relationship between the interests of creditors, as well as the risk characteristics of internal conflict of interest and risk transmission, and analyze special risks of China's financial holding company. Chapter4 studies the risk management based on internal controls. Through the comprehensive study of internal control system, design system arrangements on the financial holding company, and analyze the effect that internal firewall set up in the financial holding company. On the basis of this, analyze the system and process of risk management, and set two models of risk management of china's financial holding company. Chapter5 studies multi-level comprehensive risk management model of financial holding company based on cost management. On the basis of adequate understanding of three categories capital, place emphasis on the measurement of economic costs, configuration programs and performance evaluation, which use the principle of portfolio and examples. Last, through the risk stratification, build a multi-level risk management system of financial holding company.The third part focused on the external monitoring for financial holding company. Under the Basel II that the tripartite binding requirements of capital adequacy ratio, the external regulation and market constraints from, from the analysis the general theory, regulatory challenges and monitoring technology and the content of financial regulation and supervision of financial holding company external market constraints theory, and the concrete practice of China's financial holding company, deeply discuss China's financial holding company regulation, including the construction of the regulation mode, regulatory objectives and principles, etc. Finally, make policy recommendations on the supervision for China's financial holding company.In order to achieve the goals to supplement the previous research achievements and enlighten the follow-up study, the author explores the relevant phenomena and problems through the new perspective, adopting new theoretical tool and the new management system and management methods in the process of studying on the financial holding company. The innovation of the thesis is mainly embodies in the innovation of the theoretical tool, the contents and methods of the research.Innovation of theoretical tools:different from the traditional theoretical tools, the paper analyses the comparative advantages of the financial holding company using a game model based on the maximization of social welfare to compare notes; In exploring the efficiency performance of the financial holding company, from the perspective of risk-benefit, I use the equilibrium model of risk and benefits to analyze the conditions of synergistic effect. These above two results are coinciding with previous studies. In the study of program of economic capital allocation of economic capital management, based on the portfolio theory of the financial management, the paper designs a set of risk-contributions-based allocation that economic capital distributes among different subsidiaries. Although the set of program is simpler than it in the practice, it is no doubt that it can be used as a way of choice.The research contents and the innovation of searching methods are mainly focused on the second and third parts, which involve special risk analysis of a financial holding company, research for two methods of risk management and external regulation. They will be shown in the following areas:When researching the risk structure of a financial holding company, the paper emphatically studies special risks, in detail discusses its characteristics and formation mechanism and in the following risk management, designs and plans a corresponding system against special risks respectively. When researching risk management methods of a financial holding company, the paper discusses the internal control and management of economic capital. Since there is very little research achievement of the two management methods in the risk management of financial holding company. Especially systemic and thorough study on the latter can hardly be read, which no doubt increases the difficulty in completion of these two chapters. When I study the internal control system in a financial holding company according to the international internal control guidelines and domestic "Internal Control Guidelines", and in the light of the holding company's internal control system in non-financial industries, I design a financial holding company system of internal control. in the corporate governance, internal audit, risk indicators for early warning systems design, building principles of information systems, internal control processes in the design of the system that is the basis and practice and reflect for financial holding company of a unique arrangement of special risk. Discussed in the analysis of the financial holding company's risk management system and internal issues such as the establishment of a firewall on the basis of the proposed holding company of China's financial risk management of the two models and the principles of the internal firewall settings;The paper firstly puts forward the concept of the multi-level risk management of financial holding company's based on the economic capital management and designs the scheme of the financial holding companies about the economic capital allocation among different subsidiaries through the economic capital measurement and systematic analysis of the allocation methods to solve the key technical problems in the economic capital management in the aspect of the financial holding company. Based on these, the paper structures a multi-level comprehensive management system of the financial holding company based on the stratification of the risk levels,solves well the risk measurement and management problems in the overall level of the financial holding group which is constituted of the financial holding company and its subsidiary.In the research of external regulation for financial holding company, based on the Basel II, the paper conducts comprehensive analysis of the three pillars of financial supervision. Combined with international experience and China's practice, I propose the two basic models of regulation in China in different stage of development-the umbrella regulatory approach and the unified regulatory approach, discuss corresponding regulatory technique and content to special risks, and make three policy recommendations for the supervision in the last.