Institutional Analysis And Efficiency Study Of Banking Supervision

With the development of the economy and the quick transformation of the functions of the government in the recent years, the government has played a more important role in providing public management and services. As public expenditure is increasing, it is becoming more and more important to improve public management and services. Banking is the core of modern economy, and the hub and intermediary for disposing social resources, whereas bank supervision is an important part of the government in discharging its public management functions. During this special period when China's banking industry is constructing a new system and a new mechanism, banking supervision is confronted with many challenges. How to fully implement the ideas and requirements of effective supervision is a theoretical matter as well as a practical one. Banking supervision effectiveness is a new topic in administration study, and it has aroused great interest and caught great attention.This thesis has given a thorough analysis to banking supervision effectiveness both from the theoretical perspective and from the practical perspective. The writer believes that banking supervision is a kind of administrative behavior, as it does not provide product(s) directly to the society so as to increase the total social welfare, while it is an economic behavior as it influences the disposition of social resources in one way or another. The specialty of the banking industry lies in the fact that the government, through the banking industry, pools and disposes its basic social monetary wealth, and that is where the banking supervision's specialty lies, too. At present, China is in the process of transformation, therefore the functions and orientation of the government will be adjusted and transformed accordingly. And, the banking industry is one of the priorities in China's systemic reform and mechanic transformation. The banking industry as a whole has been undergoing a radical reform, increasing the challenges which the banking industry itself has to face. This thesis concludes that the key point to improve banking supervision effectiveness is that the banking supervisory authority coordinates with the supervised in risk supervision and management. The importance of risk management and that of risk supervision in risk control and prevention reveals that the supervisor and the supervised share common interests. But as to the risk sharing, the supervisor and the supervised fail to agree with each other, which is also quite common among commercial banks' senior managers, shareholders, the banking industry, and creditors, and which also proves that only by coordinating the supervisor's risk supervision and the risk management of the supervised can effective supervision be realized. Both inadequate supervision and over-supervision should be prevented. On the one hand, a lack of adequate supervision could result in a lack of commercial banks' willingness to improve their risk management, and rather it might encourage and urge them to undertake riskier businesses so as to higher returns. On the other, over-supervision could restrain commercial bank's risk management unfavorably, and it also might lead to a lack of commercial banks' positive cooperation, it would rather result in their finding ways to avoid supervision which would in turn result in supervision failure.As China's banking industry mergers into the international financial market and its commercial banks are catching up with their international competitors in such aspects as corporate governance, business innovation, business operation, and industry management, China's banking industry supervisory authority must adhere to international guidelines, follow the international practices in banking supervision, quicken its reform and try hard to fit in with the international trend. This thesis points out that judging from the future trend, there are four priorities in improving banking supervision effectiveness. Firstly, in the light of "Guidance on Core Principles for Effective Banking Supervision", we should set up a whole set of risk supervision system and create a favorable environment for banks' risk management. Secondly, we should coordinate risk supervision and risk management so as to promote commercial banks to improve their risk management, urge them to establish a good corporate governance and perfect internal control mechanism and system, and allow them to choose their own risk models. Meanwhile, we should employ both deregulation in some aspects and intensification in others to promote banking innovation and to improve banking supervision. Thirdly, we should introduce market force into banking risk supervision to improve supervision effectiveness. The key point is that market force should be applied in restraining commercial bank's operations. And lastly, classified supervisory policies should be applied so as to suit different situations. That is, with a common supervisory policy and a common supervisory operational manual, we should study and analyze the adaptability of different supervisory policies and that we should formulate regional and practical policies and locate supervisory priorities so that supervisory policies are more effective.