Research On The Control Of Risk Transmission Of Financial Holding Company

Financial holding company,is a form of financial enterprise which is the most in accordance with the demands of realistic and the requirements of regulatory.In the context of the financial separate operation system changed to the mixed operation system,the financial holding company development process has experienced from the restriction to encouragement. Today,in the United States,Britain,Japan and other Western developed countries,the financial industry occupies an important position.However,whether the financial holding company has the ability to continue to grow in a healthy way,and whether our country should vigorously promote financial holding company system,is based on whether we can minimize the risk of the financial mixed operation system or not.The control of the risk of financial holding companies,embodied in the three aspects what is identify of financial holding company's internal risk,internal control of risk transmission and the external monitoring of the risk.Financial holding company in connection with the banking,investment banking,securities,insurance and other financial business as an integrated financial services group.The individual financial business after years of development,experienced crisis time and again,the internal risk identification have got enough experience;the different subsidiaries of financial services can be a good risk management under the precondition of non-interfering.When financial holding company put them together,it request a higher demand-the control of risk transmission.In this paper,on the basic of the risk transmission,the author set up corporate governance,relevant transaction control,the "two-wall" system three types of control mechanisms,envisaged a complete mechanism for our country controling the risk transmission of the financial holding company.Article is divided into five sections.The first part bring forward the inner purpose of setting up a system like the financial holding company:to avoid the risk brought about by the financial mixed operation system,in order to obtain the economic benefits of that operation mode.On the frist of this part it defined financial holding company,and to explore its two established objectives;Secondly,through analysis the case of the failure of Bahrain bank and the closure of the Bank of Japan's New York branch,to prove the reality that lack of the transmission control mechanisms may cause serious harm to the financial company.At the same time,the development process of the United States's Citibank,embodyed the financial holding company's future.Third,analysis the the type of the risks existence in the financial holding company,and find the reasons of the risk transmission,transmission channels and mechanisms.Fourth,by means of a comparative analysis of the United States,the United Kingdom,Japan,Germany's form of the financial holding company and risk control,to find advanced experience which is internationally shared;Fifth,based on the foregoing analysis and experience,the author initially to build a corporate governance,relevant transaction,the "two-wall" system for the framework of the risk transmission control system.The second part of the article introduct the details of building corporate governance mechanisms of the risk transmission control system.Because financial holding company has large and complex structure,its corporate governance can not be limited to balances between the board of directors,shareholders and managers layers.First of all,at the most basic level, the financial holding company should select an appropriate concentration of ownership structure.At the same time,the board of directors should be ensure that is independent and impartial,and ensure that executives are independent and efficient,which is the most basic requirements to control risk and the risk transmission.Secondly,through analysis of Credit Suisse Group internal risk management system,we found that the adoption of the Board of Directors,the Risk Management Committee,a subsidiary of risk management of the person in charge at three levels of the group supervision of strict control,it is worth to learn.Article three,according to the theory and practical experience requirements,the author designed the top-down,scattered by the concentration which called "pyramid" model-based risk management system.The parent company's Board of Directors as the top of "pyramid",its overall responsible for risk control;under the parent company's board of directors set up the Risk Management Committee and the Audit Committee,as the second layer of "pyramid",is directly responsible to the Company's Board of Directors;the person in charge of risk management,department audit and regional audit whom assigned by the Risk Management Committee and the Audit Committee,as the bottom of the pyramid,is responsible for the parent company,which creating a full range of risk coverage and risk transmision control.The third part of this article,the author focuses on the risk transmission of financial holding company-control of relevant transaction,relevant transaction is the basic channels for financial holding company to realize synergies and overall efficiency,there is the rationality of its existence and legitimacy.However,if left the relevant transaction unchecked, it can also be the channel of risk transmission and expanded.In this section,the author first defined relevant transaction and introduct the definition of associated institutions,then put forward the main types of relevant transaction in a financial holding company,and the existing possible hazards.In according to the possible risk of relevant transaction of the financial holding company,the author set up four ways to built the relevant transaction's control mechanisms:First,to ensure that the financial holding company has relevant transaction formulate rules;second is carried out restrictions on the amount of relevant transaction;third pairs is related financing transactions,asset trade restrictions;fouth is set up the principle of information disclosure about relevant transaction.Through establishment of these systems,relevant transaction can play a cost-effective,but also be able to minimize the risk transmission of the relevant transaction.Partâ…£,the author detail the construction of the control of risk transmission mechanisms -the "two-wall" system."Two wall" refers to the "Firewall" and "Chinese wall",the "two-wall" system is not only one of the most important aspect of control the risk transmission,but also internationally used,and has been proven to be effective to control risk transmission.The author first introduced the "firewall" and "Chinese wall" system features, then proposed the "two-wall" system Specific requirements.Set up a "Firewall" system,the general need is to set up "Corporate Firewall" and "Business Firewall" two type of system. "Corporate firewall" through ensure that a subsidiary must have an independent legal entity to make sure that it can bear legal responsibility."Business Firewall" is classified as "Financial Firewall","Institution Firewall","System Firewall" three types,namely,the proportion of funds from restricted subsidiaries,office space,separated from the hardware facilities, management and some aspects of this business to ensure that the separation of mother and son between the company and a subsidiary that the risk will not pass each other.Establishment of a "Chinese wall" system,it is a information isolation system to prevent unauthorized disclosure of the inside information,and prebent insider trading and the occurrence of transportation benefits.The fifth part of the article back to risk transmission control mechanism of our country's financial holding companies.Through the analysis of the previous article,it is easy to find our financial holding company on risk transmission control mechanism is also imperfect.Not only the law has not yet been made on the financial holding company,but its development also very non-standard.In this part,the author first analyzes the development of financial holding company status:in the current system,the financial holding company has a large space for development.However,China's financial holding company risk control mechanisms exist many problems:such as the lack of the Risk Management Committee and the Audit Committee,and the risk management principles is not clear,lack of attention to the risk transmission and so on.Xinjiang Delong's collapsing can be predicted that China's financial holding companies need a long way to standardize the development and expansion.Finally article made a number of additional recommendations on China's financial holding companie, and a number of questions not raised left for further study.