The Research On Banks' Participation In Corporate Inner Supervision

Due to asymmetric information between banks and firms, there will be moral risks in their financing relationship. Borrowing enterprises will take advantage of asymmetric information for their own benefit and pass the risks to banks, causing a great deal of bad loans in banks. One of the reasons that caused bad debts for banks is the imperfect corporate governance. The underlying method for protecting the bank creditor's rights to firms is to solve the problem of asymmetric information between banks and firms by means of improving corporate governance mechanism.According to Stakeholders' co-governance, as the creditor, banks are no doubt one of the stakeholders of the firm and have the right to participate in corporate governance. The function and value of creditors' participation in corporate governance lies in lowering creditors' risk to protect creditors' legal interests, and controlling insiders' control to ensure scientific and high-efficient decision of company.In China's existing legal system, the way that banks participate in corporate governance is to send representative of banks to The Board of Supervisors of the company to participate in the firm's internal supervision. Bank supervisor has the right to check the firm's financial status, inquire and object to the relevant decisions and actions of major capital change made by management; request the Board of Directors to stop the illegal business operation that will cause capital decrease to the firm. If the Board of Directors or directors refuse to follow the requirement, the bank supervisor can ask the court to ban the company's action. When necessary, the bank supervisor can sue the directors and related people In order to facilitate the banks participation in corporate supervision, internal governance of the company should be strengthened and obligation of information disclosure to banks shall be clearly defined so as to solve the asymmetric information problem between banks and firms. Banks should adjust their loan policy to the companies based on the information disclosed by the firms in order to prevent them from evasion of debt payment and protect the bank creditor's rights. The creditors can be supervisors by negotiation in the supervision. and the bank supervisors should be strengthen the rights in the supervision of the capital. By given the supervision right to the banks, the different interests parties can negotiate and controlled each other to advise amusing the rights.