The Risk And Supervising Of China's Financial Holding Company

With the Globalization of Economy, the mixed-finance has become the trend for the whole finance industry in the world. Especially in the 1990s, the global finance develops and changes a lot. The U.S.A passes the Financial Services Modernization Act of 1999 (Gramm-Leach-Bliley Act, GLB Act) , which marks that mixed-finance is a development trend for the finance services market , and that competition in finance switches from the single business in bank, securities, insurance or trust to the all financial services. During this period, the merger and acquisition tide of financial institutions waves higher and higher, which results in the emergence of large global financial service groups at an unprecedented speed. To temporize the mixed-finance, the western countries loose their finance control gradually, which contributes to the all-round and diversified financiers. In fact, some European countries like Germany carries out mixed operation system of omnipotent banks traditionally. The U.S.A., the U.K., Japan and the South Korea etc. announce that financial institutions adopt mixed-finance one after another. The divided finance supervision departments in some countries are developed into a unified and mixed one. To rise to the challenges and strengthen the comprehensive force, it is the best choice to establish financial holding companies for the domestic finance industry in the transformation process.In the mixed-finance background, many voices in China are crying for the mixed running finance. Especially after China's joining in WTO in November, 2001, the finance industry is opening deep and broadly day by day, and facing unprecedented opportunities and challenges. With the new global development trend, China quickens the improvement of the finance management system, and at the same time, establishes the development strategies of comprehensive finance within 5 transition years according to the WTO. Under the circumstances of divided running finance, the state strives to explore cooperation among banks, insurers, securities, which enables them to infiltrate among each other in the process of opening to the outside world. Meanwhile, the state carries out academic research and practical exploration, enhancing the integration and competition force. However, domestic finance industry also faces multi risks. To prevent and avoid the risk and reinforce the supervision is an important premise for development of the domestic social economics.In the aforesaid background, the paper analyzes the feasibility of domestic financial holding companies, the mode selection, and possible risks as well as prevention of the risks, and supervision. The paper is organized in four parts.The first part explains what is the financial holding company in brief. It defines the financial holding company and its characteristics such as mixed-financial, property right links, consolidated financial statement. And it also discusses the main advantages of the financial holding company, which is a development trend of the global finance industry.The second part, based on discussion of the first part, analyzes and makes a suggestion of the operation modes China should choose. It firstly raises the two dominant operation modes for the financial holding company in the world, and introduces their development history, structure, characteristics and the representative financial groups. Then it combines the domestic real conditions and discusses the mode selection. At present, omnipotent bank does not adapt to China since it requires developed social economics and forceful supervision. With the developing finance market, securities of gradual higher status, and the reform of the financiers, it is better to form and develop financial holding companies. At last in this part, it briefly introduces the existent financial holding companies, which are in forms of the industrial department holding the shares, the non-bank financial institution holding shares, or the commercial bank holding shares, and illustrates some representative financial holding companies.The third part analyzes the risks that domestic financial holding companies are facing. The system of financial holding company is the best mixed operation mode for domestic financial development. However, it does not mean that it is a perfect system, which, like other institutions, also meets multi traditional financial risks, such as credit risk, liquidity risk, interest rate risk, exchange rate risk, environment risk and policy risk and so on. Furthermore, due to the financial system "divided operation and divided supervision" being carried out for a long time, the financial holding company not only faces the traditional risks, but also meets many new risks like capital scarcity, interest conflict, and related party tractions etc.. The fourth part puts forward five prevention measures for the possible risks, in order to ensure the stable and healthy development of domestic financial holding companies. The first measure is against the capital scarcity, and demands to reinforce the supervision on capital adequacy. The second measure is to better laws and regulations, set down the accounting criteria, and establish the systems for financial privacy right and information disclosure, so that the financial holding companies may comply with, that the customers' lawful right can be fully protected, and that the supervision bureau may learn the current condition in time. The third is to establish a fire wall against the related party tractions risk for domestic immature financial holding companies, Here it gives some examples and brings forward how to establish the fire wall. The fourth is about the projection of the single supervision institution over the bank, security, and insurance. It is said that the single supervision will ensure the stable and healthy operation of finance industry and the lawful right of the customer, exert fully the function of finance, and promote the development of national economics. The fifth is about the cooperation of international supervision bureaus. In view that international financial activities is beyond the administration of one country, China should reinforce the coordination with others.This paper introduces in detail the advantages of the financial holding company as well as its risk management and supervision. The main innovation is that its analyses covers insurance industry, including the relevant laws and regulations, the supervision indicators and insurance cases, while most previous researches focus only on the financial holding company concerning banks.