Research On China’s Financial Macro-Prudential Regulation In The Post-Crisis Era

The international financial crisis, triggered by U.S. subprime mortgage crisis in2007, has a huge impact on the current financial supervision system. More than fouryears, the global economy hasn’t yet to be out of the shadow, there is still a long wayto go before a return to the balance. The international financial crisis has made peoplesee the tremendous destructive power of the shadow banking system that has longbeen seriously neglected. Some reasons, such as the features of high risk andvulnerability, the absence of external supervision, without deposit insurance and theprotect of central bank lender of last resort, make the shadow banks accumulating intoa huge risk while promoting financial development in nearly three decades. At thesame time, the central bank which assumed the duties of maintaining financialstability, over-optimistic about the effectiveness of the financial markets, hadthought that the financial system could achieve stability through self-regulation whilethe price level was guaranteed to be stabile. Some other regulatory authorities in theimplementation of micro-prudential supervision, concerned themselves more aboutthe individual risk at financial institutions, but ignored the cross-industry,cross-border, cross-institution infection of the financial risks, and pro-cyclical effectsof financial systems. Therefore, in the post-crisis era, the world’s major economiescame to a consensus in the process of reflection on the crisis: the important reason inregulatory level is the lack of macro-prudential supervision, which is designed toguard against systemic risk and maintain financial stability. Thus, as the core areas toimprove the financial supervision system, building financial macro-prudential policyframework had become an urgent task. Under the lead of international organizations,such as Basel Committee on Banking Supervision (BCBS), International MonetaryFund (IMF), Financial Stability Board (FSB), Bank of International Settlements (BIS)etc., national governments had launched a large-scale reform of financial supervisionsystem, especially after the year of2010, they had made positive progresses inbuilding the policy framework of macro-prudential financial supervision. This major adjustment and reform of the regulatory concept would have a far-reachingsignificance for global financial stability and economic development.Although the impact of this crisis to China was relatively insignificant, we couldnot ignored that there were a lot of shadow banking in current Chinese financialsystem, systemic risk accumulated and spread between the institutions, andmicro-prudential supervision could not adapt to the reality of mixed operation andthe needs of financial innovation. So, building a financial macro-prudentialframework is also of great significance for financial supervision reform, which, nodoubt, will help to improve the stability of the financial system, and minimize the riskof macroeconomic fluctuations.This paper reviewed both domestic and foreign studies of macro-prudentialsupervision, summarized the latest development, conducted an in-depth theoreticaland empirical analysis from the necessity、objectives and organizational structure ofsupervision. For the necessity, we discussed the operation mechanism of the shadowbanking and their own vulnerability, pointing out that the collapse of the shadowbanking system is the principal regulatory root of the financial crisis. For theobjectives, we tested empirically the systemic risk premium and procyclical effect ofChina’s commercial banks from cross-sectional dimension and time dimension, andmeasured their impact factors. For the organizational structure, we discussed thestatus and role of the central bank in financial macro-prudential supervision system,studied difficulties and challenges while assuming the functions of maintainingfinancial stability. In a practical level, we also paid more attention to the developmentstatus and potential risks of the shadow banking system in China, and the explorationand efforts of our regulatory agencies in the reform of financial macro-prudentialsupervision. We fully learned the practical experience of international organizationsand the major economies, so that these would be enlightenment to China’s financialregulatory reform.The main structure, content and research ideas are as follows:The first chapter is the introductory section, where we introduced the researchbackground, significance, ideas, innovations and deficiencies, reviewed the latestacademic achievements of financial macro-prudential supervision. These are the theoretical basis of following research.The second chapter is the comprehensive introduction of the financialmacro-prudential supervision, in which we drew the main content from the definition,the concept of evolution, the need for regulation, the framework of the objectives etc.The third chapter pointed out the reasons of the financial crisis from theregulatory level. We focused on the mechanism of action and risk vulnerability of theshadow banking, and also concerned of the development status and potential risks ofthe shadow banking.The fourth chapter made an empirical study on the risk profile of the Chinesecommercial banks from the cross-section dimensions and time dimension of thefinancial macro-prudential supervision. We measured the systemic risk premium ofsome commercial banks, verified the inherent pro-cyclical behavior, and examinedthe impact of bank indicator variables for systematic risk.The fifth chapter analyzed the status and role of the central bank in financialmacro-prudential supervision. The central bank has many advantages in the exerciseof financial macro-prudential supervision, and should be given greater systemicregulatory functions to ensure the dominant position in the financial macro-prudentialsupervision.The last chapter listed the progress and achievements made by the internationalcommunity in the reform of financial macro-prudential supervision, compared toChina’s current exploration and practice in this field, in order to sum up experienceand make the revelation for future reform.