Research On The Structures Of Financial Administrations In A “Dual Pillars” Regulatory Framework

Since the beginning of 21 st century,financial crisis has occurred frequently in the global scale,causing financial administrations to adjust their structures.Over 60% of total countries in the world have implemented such reforms.Since an essential part of current reform in financial supervision system is to strengthen macro-prudential regulation,a “dual pillars” regulatory unit including currency and macro-prudential policies has accordingly been generated.Within this framework,focus of study has converted from whether microscopic regulatory commissions including CBRC,CSRC and CIRC should unit or separate into whether the central bank should undertake some regulatory responsibilities,or whether it should provide macro-prudential supervision or adopt a “double columns”organizational structure to supervise financial institutes micro-prudentially.Relevant researches mainly focus on policies,rarely on the mechanisms of evolution of organizational structures.In terms of the contract theory,structure of financial administrations is in fact a form of contract between the central bank and regulatory agencies,as well as a state of organization.Reform on financial administration's structures copes with optimal borders of different agencies and a mechanism of contractual administration of their behavioral coordination.The optimal administrative structure can reduce transaction fees to the lowest level,while the optimal ownership structure can maximally stimulate specialized investments on prior relationship.If structures of different regulatory commissions are not coordinated,then a quasi-market,coordinative mechanism would be a free coordination mode in which all agencies have equal status and there is no specialized coordinative commissions or protocols.United regulation,in this way,turns to be a stratified mode of coordination featured by commands and authorities,amongst which there will be a mode of coordination by intermediate organizations.This way we can introduce incomplete contract theory into analysis of financial administration structures,and then from the angle of new institution economics to review the logic of reform of financial administration structures.This paper consists of four parts to dig deeply into this issue.First,the paper combs the practices and theoretical evolutions of financial supervision during the past century by analyzing the integration and separation of the central bank and financial administrations.The author discovers an overall pattern of “unifying--separating--unifying again”,among which a red line is considered as the performance of central bank's role as “the last loaner”.The central bank can focus on currency management when financial industry runs well without the need of asking this “last loaner” for help.If it acts that role to deal with financial crisis,the central bank will become the “last barrier” of financial market and prevent systematic risks from an overall layout,which requires it to have some regulatory functions or influence on regulatory commissions.This will be the basis of analysis of financial regulation theories in “dual pillars” framework,also the main content of Chapter Two.The following three chapters,which are core components of this paper,will discuss the selection of financial administrations' organizational structures in “dual pillars” framework from the perspective of incomplete contracts.Chapter Three first states the idea that incomplete contract theory serves as an effective tool to explore the structures of financial administrations in “dual pillars”framework.Coordination among these agencies is considered “transaction” in new institution economics.After that,the author will introduce the theory,logic and mode of how “dual pillars” framework regulates selection of organizational structures from a view of coordination,which integrates such regulation with incomplete contract theory and paves a foundation for following statements.Chapter Four analyzes the all-in-one structure of financial administrations within “dual pillars” framework.The structure is also called “super central bank”mode because the central bank is then in full charge of currency policies,macroprudential policies and micro-prudential regulation.Analysis is conducted using tools of game theory.The author firstly refers “the thief-guard game” to discuss the gaming between commissions and financial institutes under micro-prudential supervision,and then uses an evolution game to elucidate the predicament of coordination between central bank and commissions under macro-prudential supervision,followed by a collaboration game to assess the mechanism of unification of financial commissions,and finally an incomplete contract to interpret the theory of such unification.The author also takes U.K.As a example to simulate the evolution of financial commissions' structures toward the “super central bank”mode.As an important tool in analysis of contract theory,game theory acts as the primary theoretical tool in this chapter.Chapter Five analyzes the structures of intermediate-type financial commissions in “dual pillars” framework,which mainly appear to be the mechanism of coordination among financial supervisors.Intermediate organization theory,a part of incomplete contract theory,is utilized as the analysis tool.After clarifying the history and mechanism of financial supervision and coordination systems,the author uses intermediate organization theory to analyze the attributes and efficiency of relevant supervision and coordination.A developed and a developing country are selected as representatives to expound the development of these systems.Chapter Six renders an empirical study.The author selects 62 highly representative countries as samples and uses ordered logit model which has been working well in researches of financial commission structures during recent years to evaluate factors affecting structural transitions of financial commissions,especially those affecting the integration and separation of central bank and regulatory agencies.All these serve as an empirical testing of selection of financial commissions' structures in “dual pillars” framework.Sections above constitute the third part of this paper.The last chapter is also the fourth part of this paper.On the basis of aforesaid analysis,this chapter explores problems existing in China's financial commission structures in “dual pillars' framework using incomplete contract theory,and proposes corresponding recommendations.The author believes that China's financial supervision system knowns as “one committee,one bank and two commissions” is an intermediate structure of financial supervision.In “dual pillars”regulatory framework,China should further improve its financial supervision and coordination systems by strengthening unified coordination of financial commissions,building an information sharing mechanism for coordination of financial commissions,enhancing the efficiency of Financial Stability and Development Commission of the State Council's as a third-party arbitration,and establishing a reputation mechanism of financial supervision.As an innovative point,this paper introduces new institution economics into study of financial supervision system by adopting the incomplete contract theory to analyze the logic of selection of financial commissions' organizational structures in“dual pillars” framework,which provides a demonstrative attempt of applying new institution economics into financial field.