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Financial Restraints And Monopoly Bank System In The Economic Development

Posted on:2005-08-31Degree:MasterType:Thesis
Country:ChinaCandidate:L P LvFull Text:PDF
GTID:2156360122997867Subject:Finance
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During China' s reform in the last 20 years, especially since the 1997 All State Financial Conference, much transformation work has been done on state owned banks and has made some achievement. But generally speaking, state owned banks are still strong monopolies in our banking system. Depending on the institutional obstacle, man-made monopoly brings the financial market low efficiency in operation and the distortion of financial recourses allocation, made the reform of state owned banks the core of economy transformation.During the fast economic developing from 1960s to 1990s, Korean government has strong intervention in its financial system and the bank system has a strong feature of monopoly. Analyzing through a monopoly bank model, banking system in Korea during that period has played an positive and very important role in its economic development. But During the fast economic developing from 1960s to 1990s, Korean government has strong intervention in its financial system and the bank system has a strong feature of monopoly. Analyzing through a monopoly bank model, banking system in Korea during that period has played an positive and very important role in its economic development.the long term established monopolistic banking system and the strong control on financial systems by government, brought Korea many potential problems in its economy. Not put enough attention on the prerequisites for financial liberalization, the reform towards liberalization after long period of strong control on financial systems is the core reason that made Korean financial market collapse in the financial crisis. For our banking systems and the recent reform on commercial banks which try to bring competition into the system, there is no doubt that lessons learned from Korea is important to us.Through discussion of the monopoly bank model, this article presents the contradiction between the monopoly bank systems and traditional financial deepening theory. By analyzing the South Korean puzzle of simultaneous4financial restraints and economic growth, the article suggest that the monopoly bank system has played a positive role for the fast economic growth of South Korea in the second part of last century. In traditional financial restraints theory, banking system, which presumably intermediates between savers and investors, are implicitly assumed to operate under perfectly competitive conditions transforming deposits into loans at zero cost. That makes the empirical test on financial liberalization focus on the effect of financial policy through the change of real interest rates, but ignore the great effect of the responses by noncompetitive banks to financial restraints and control. Through the practice of South Korea, financial restraints have great positive effect on financial deepening when the effect of the change of real interest rates is not very effective.Then through analysis on financial causes for the Korean financial crisis, the article suggests that the harshly reform on the long established monopoly bank systems before the Asia financial crisis is the core reason for the severe damage of South Korea. Through econometrics analysis on our banking systems and the depth of our financial development, the article discusses the underline base of our monopoly nature in our bank system. Combined with the practical problems in our economic development and financial reform, we discuss the unique feature of our state owned banks by both qualitative and quantitative analysis. Finally, based on all the above discussion, we give our suggestions on our financial development, that is, before financial liberalization which focus on liberalization of interest rates and the establish of competitive bank systems, we must ensure all the macro and micro prerequisites in our economy are achieved. In the article, we also discussed the financial restraints measurements that needed for the ending of the monopoly bank system.
Keywords/Search Tags:financial restraints, financial deepening, financial liberalization, Monopoly bank system, commercial bank reform
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