| The reform of the state-owned commercial banks is of the most importance in the economic reform in China. The singular structure of the ownership of the state-owned banks has generated a redundant chain of principal-agent relationship, which in turn weakened the function of the incentive schemes; the lack of effective regulations lowered the efficiency of management and gave rise to a high financial risk exposure. According to the modern theories of organization, the principal-agent relationship is subject to the asymmetric information and the behavioral externalities of the parties. Therefore, the realization of the maximum profit of an organization is directly related to the endeavor of its agents. The incentive scheme can ensure the "upside" effect of the agents' behavior. This paper concentrates on the principal-agent relationships existing in the state-owned commercial banks in China, including the relationships between the government and the bank managers, as well as the internal relationships in those banks. In the case of state-owned banks in China, the ownership cannot be clearly defined. Multiple layers of principal-agent relationships exist between the ultimate owners and the management, which may easily cause series agency problems. From the perspective view of agents, the author analyzed the impact of the yet-to-defined ownership of the state-owned banks, the moral hazard faced by the government, the redundant chain of principal-agent relationship and the imperfect market mechanism. By applying the generally accepted models of the agency problems in the novel institutional economics, combined with several case studies of oversea banks, the author investigated the limitations in the monopolized ownership by the government, followed by some advice on the corporation reform of banking industry and the designing of the incentive and regulation scheme in order to provide some idea on the resolution of the current low efficient banking management,...
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