Reforming The Corporate Governance Of Financial Institutions

The moral hazard of financial institutions is the "Grey Rhino" of the financial market.Almost every financial crisis is closely related to it.How to solve the moral hazard of financial institutions has always been an important proposition in the field of financial supervision.The 2008 financial crisis made the academia and financial regulators aware that supervision of financial institutions has been insufficient to regulate the behavior of moral hazard of financial institutions.It is necessary to reform the corporate governance legal system in response to the special corporate governance of financial institutions,so as to change the behavioral motivations and risk preferences of financial institutions and further address the moral hazard of financial institutions.Financial institutions in the form of company are the result of legal abstraction.Law is an important part of corporate governance mechanism and has an important impact on its formation and operation.In practice,financial supervision and regulation of moral hazard of financial institutions lacks self-sufficiency.It is an important proposition for the interaction and integration of financial law and corporate law to solve the moral hazard problem through corporate governance of financial institutions in the post crisis era.Although China's financial system has not been directly impacted by the financial crisis in 2008,the special financial market system in China has formed a very prominent moral hazard problem of financial institutions.In addition,China's financial marketization is entering a period of acceleration.Private capital continues to enter the banking industry.With the promotion of RMB internationalization and capital convertibility,the financial industry is opening up in a wider range,deeper level and wider field.To regulate the moral hazard of financial institutions and keep the safety and stability of the financial system need higher requirements and a more international vision.Based on the research background of China's financial market,combined with the local problems existing in the legal system of corporate governance of financial institutions,and referring to the relevant theoretical achievements and system reform experience of corporate governance of financial institutions abroad,this paper conducts a forward-looking research on the legal system reform of corporate governance of financial institutions,breaks through the path dependence of corporate governance of financial institutions,and reforms the legal system of corporate governance in order to regulate the moral hazard of financial institutions and provide the guarantee of legal institutions for the market-oriented transformation of financial system and the safety and stability of financial system.This paper studies the problem of solving the moral hazard of financial institutions through the reform of corporate governance legal system,which mainly includes the following five aspects.1.The necessity and feasibility of the reform of the legal system of corporate governance of financial institutions to solve the moral hazard of financial institutionsMoral hazard is an economic concept,but it is widely used in the field of law.From the perspective of information economics,moral hazard is not a risk,but a behavior mechanism formed or expanded by ex-post information asymmetry.The basic principle of regulating moral hazard is incentive compatibility theory,that is,the reward and punishment of agents are related to their behavior related information,and the cost and income of principals are internalized into the cost and income of agents.In other words,through the incentive mechanism urges the agent to act for the benefit of the client.As one of the important incentive mechanisms,law requires the actor to take legal responsibility for his own behavior,so that the relevant social costs and benefits can be transformed into private costs and benefits,so as to achieve the optimal state of social welfare through the optimal choice of individual behavior.The mechanism of moral hazard in financial institutions is diverse,including the establishment of financial safety net and the innovation of financial market.The root of its legal system is the imbalance of rights and obligations.The financial institutions in the form of companies are the result of legal abstraction.Their behaviors are inevitably affected by the will of natural persons.Compared with the imbalance of rights and obligations in the dimensions of tort liability law and contract law,the imbalance of rights and obligations formed in the legal system of corporate governance of financial institutions at the level of organizational law cannot be ignored.In the post crisis era,the moral hazard supervision of financial institutions has not only traditional ways of financial regulation,but also gradually established the meta-regulation of financial institutions.The former includes the capital supervision and structural supervision of financial institutions,while the latter is the corporate governance supervision measures around the corporate governance of financial institutions,such as the composition of the board of directors,the remuneration system of directors and senior executives.However,the dislocation of corporate governance legal system and special corporate governance of financial institutions,and the lack of systematic corporate governance legal responsibility system of modern corporate law incentive mechanism further aggravate the complexity of the imbalance of rights and obligations of financial institutions,which makes the incentive compatibility of corporate governance supervision of financial institutions on moral hazard of financial institutions extremely limited.In addition,there are local problems in the occurrence and regulation of moral hazard of financial institutions in China.There are prominent implicit government guarantees in China's financial market,and they are in the period of acceleration of financial marketization.The structural reform of financial system and the continuous opening of financial market further induce the moral hazard of financial institutions,but at present,the regulation of moral hazard of financial institutions still depends on strengthening the financial supervision,and it has a very limited effect on the hidden moral hazard of financial institutions in China.Therefore,it is necessary to reform the legal system of financial institutions based on the characteristics of corporate governance in China,reshape the power allocation,behavior rules and rights and obligations arrangement related to corporate governance of financial institutions,so as to fill in the gap of financial supervision,adjust the behavioral motivation and risk preference of financial institutions,and further solve the moral hazard that the main mechanism is the combination of implicit government guarantee and financial marketization.2.To solve the moral hazard in financial institutions under the evolution of corporate governance theory and relevant basic principlesNowadays is a complex and changeable "company era",any single theory cannot provide all the answers to all the problems of corporate governance.In the post crisis era,corporate governance of financial institutions has become an independent research field.Based on the objective differences between it and traditional corporate governance practices,corporate governance of financial institutions needs theoretical evolution and institutional reform.The supremacy of shareholders' interests is considered to be one of the important factors leading to the financial crisis in 2008.However,in the post crisis era in Britain and the United States,the regulatory and legislative reform of corporate governance of financial institutions is still deeply influenced by the theory of maximizing shareholders' interests,focusing on the conflict of interests between shareholders and managers,strengthening the supervision of managers' behaviors through shareholder empowerment,and realizing the interests of shareholders and managers In essence,the unity of the theory of stakeholders further intensifies the moral hazard of financial institutions;the stakeholder theory gives the opposite answer to the theory of supremacy of shareholders' interests on the question of what the company's interests are.However,corporate law,such as German Corporate Law,whose goal is to protect the interests of stakeholders,has not performed well in the financial crisis.On the one hand,the theory of stakeholders is subject to the inherent problems that are difficult to define the scope of stakeholders,which not only has high system cost,but also easily leads to opportunistic behavior of financial institution operators;on the other hand,in the post crisis era,many scholars put forward the reforming of corporate governance of financial institutions around the concept of stakeholders,that is,relying on the fiduciary duty system of directors,introducing the debt management.However,unlike the risk aversion of non-financial corporate creditors,the financial safety net mechanism has formed a risk neutral preference.In practice,the creditors of financial institutions lack incentive and ability to participate in the corporate governance of financial institutions.In the post crisis era,corporate governance of financial institutions has become a more independent research field.Andreas Kokkinis,based on the EMS corporate governance theory proposed by Andrew Keay,puts forward the financial sustainability theory for corporate governance of financial institutions to regulate moral risks and curb excessive risk management of financial institutions,so as to ensure the safety and security of the financial system Stability and safeguarding the overall interests of the society.This theory has great theoretical inspiration for solving the moral hazard of financial institutions by taking corporate governance as the path,taking the overall social interests as the ultimate goal of corporate governance of financial institutions,based on the sustainable development of financial institutions,systematically reconstructing the legal responsibility system of corporate governance of financial institutions,overcoming the endogenous factors of moral hazard of financial institutions,so as to solve the moral hazard of financial institutions to provide theoretical support for corporate governance.3.The reconstruction of the shareholder responsibility system of financial institutions to solve the moral hazard of financial institutionsThe limited liability is an important system,which leads to the moral hazard of financial institutions.The lack of predictability and operability of the application conditions of the piercing the corporate veil,the prudent attitude of judges towards the denial of corporate independent personality,the collective action dilemma of involuntary creditors and other issues make its scope extremely limited in practice,and it is difficult to solve the moral hazard of limited liability.In the background of 2008 financial crisis,financial market and financial institutions are the field.The emergence and expansion of shadow banking and the rise of institutional investors show that the particularity of financial institutions has essentially changed the rational presupposition of the limited liability,thus aggravating the moral hazard of financial institutions,and ultimately leading to the high social cost of the externality of the limited liability in financial institutions is higher than the system benefits it brings.In fact,compared with the limited shareholder liability of non-financial companies,the legislation of the limited liability in financial institutions is later confirmed,but its rapid development has promoted the development of the financial system,at the same time,it has been accumulating financial system risks.The existing commercial risk distribution and control mechanism is not enough to solve the moral hazard of the limited liability in financial institutions.Based on the investigation and analysis of the reform proposals and schemes of limited liability put forward by financial law and corporate law scholars,including double liability of shareholders,pro-rata liability,elective shar shareholder liability,risk fund and pro-rata liability and enhanced obligation,combined with the development status of China's financial market,characteristics of financial system and relevant legislative status,financial institutions are classified on the premise of this,the shareholder' s liability of financial institutions is reconstructed with the logic structure of "the presupposition of factual state,the rules of rights and obligations,and the legal consequences".That is to say,the financial institutions of the banking industry should apply the enhanced obligation,and the non-banking financial institutions should apply the risk fund and pro-rata liability.4.To solve the moral hazard in financial institutions by rebuilding directors'fiduciary dutyTaking the 2008 financial crisis and the practice of China's financial market as the research field,the current legal system of corporate governance causes the structural distortion of directors'governance responsibility and incentive mechanism,which forms the deviation between the practice and concept of corporate governance of financial institutions,thus leading to the moral hazard of financial institutions;under the framework of path dependence theory,it is found that strengthening the supervision of corporate governance of financial institutions has a very limited role in regulating moral hazard through the examination and reflection of the reform of internal corporate governance of financial institutions.Therefore,it is necessary to reshape the fiduciary duty of directors of financial institutions under the guidance of the theory of entity maximization and sustainable development,and further reform the liability system for breach of fiduciary duty.Based on the investigation and analysis of the proposals and plans for the reform of the existing directors' fiduciary duty system,including the direct expansion of the scope of application of directors'diligence obligation,the introduction of directors' fiduciary duty and directors' public governance obligation,under the perspective of corporate governance of China's financial institutions,combined with the current situation of financial legislation,the power allocation pattern of“strong supervision and weak justice" should be reset and the rules of directors' fiduciary duty should be embedded in the current legal framework,and build a ternary structure system of directors' fiduciary duty.On the premise of distinguishing between banking and non-banking financial institutions,the former should introduce directors' public governance obligations to solve the problem of moral hazard caused by the bail-out;the latter should construct a ternary structure of directors' fiduciary obligations to achieve the governance goal of maximizing the interests of financial institutions and sustainable development,so as to play a role in solving moral hazard.We should rethink and reconstruct the liability system of damages for directors'breach of fiduciary duty in financial institutions,and construct the derivative action of stakeholders,so that it can become the private law system to achieve the goal of corporate governance in financial institutions and regulate the moral hazard of financial institutions.5.To improve the function of the supervisiory board of financial institutions to solve moral hazardCompared with the supervisory board in other industries,the operation of the board of supervisors in China's financial institutions plays an important role in the risk control of financial institutions in the banking industry.We should make substantive institutional reform on the issues of "strengthening the substantive supervision power of the board of supervisors,optimizing the allocation of supervision authority between the board of supervisors and the independent board of directors,and constructing the incentive and restraint system of the board of supervisors in financial institutions".Like other countries,the inherent defects of China's board of supervisors make it face a serious Corporate Governance Dilemma,resulting in the absence of the system of supervisors' fiduciary obligations,and the lack of independence of China's board of supervisors,the structural distortion of the incentive and restraint system of the company law and other localization problems.Taking the maximization and sustainable development of financial institutions as the goal of corporate governance,combining with the special supervision structure of the board of supervisors-independent directors in China,drawing on the legislative experience of the board of supervisors in Germany,Japan and other countries.In order to ensure the independence of the board of supervisors,we should encourage the board of supervisors to exercise its supervision authority,so as to solve the moral hazard of financial institutions actively and indirectly.