Research On Coordination Among Elements Of Financial Safety Net In China

Banking system is playing an important role in economy from the whole world. A stable banking industry supports a reliable payment system, increases its deposit ratio and speed up investment and economic growth, which is beneficial for financial intermediate. Banking crises not only deteriorate the survival and development of individual bank, but also spread the risk to the whole industry, which is jeopardized the safety of financial system, economic development as well as the stable political community. To some extent, it explains why most government set safe financial system as a key goal.In the light of the serious bad influence of bank crisis on economy and society, the countries all over the world think highly of banking system security, and take measures to keep the system safe and protect public interest, that is the Financial Safety Net. The Financial Safety Net includes prudential supervision, deposit insurance and the lender of last resort. The three components have their own functions and coordinate so as to establish a well-done banking security protection system.At present, the Deposit Insurance System of China is establishing, which shows that Chinese government considers the establishment and development of the Financial Safety Net very much. In this situation, study on how to coordinate the three components, which could protect banking system and prevent systematic crisis, is no doubt significant.This paper is on the base of establishing perfect Financial Safety Net and keeping banking system safe, mainly analyses the three components'coordination about function, daily communication, information share, the process to deal with problem banks and the measures to avoid limitation so that the Financial Safety Net could take full advantage.Chapter one is the introduction part which discusses the paper's significance, literature summary, general content and innovations.Chapter two introduces the definition, components of the Financial Safety Net, analyses the basic functions and intrinsic limitation of the Financial Safety Net and discusses in detail the differences and relation among the three components. Chapter three discusses the Financial Safety Net's status quo in China, America, Britain and Chinese Hong Kong, compares and researches the functions, information share, process to handle problem banks, measures to avoid limitation of the three components, and concludes the valuable experiences. There are only two components in Chinese Financial Safety Net. There are obvious overlaps in American prudential supervision system. The three components have very explicit functions in Britain. In the respect of treating problem banks, the components coordinate pretty well in Hong Kong.Chapter four generalizes China's gap and problems exited in the establishment of the Financial Safety Net and the coordination of the three components. There are several problems in the Financial Safety Net of China, such as inexplicit functions, insufficient information share, misty criterion of the lender of last resort, few methods to treat problem banks, undeveloped market exiting standard and immature risk prevention system.Chapter five gives the policy suggestion of the coordination of the three components in the light of the status quo and problems of Financial Safety Net in China. At first, China should establish deposit insurance system as soon as possible to relieve the pressure of People's Bank of China and renew the structure of the Financial Safety Net. Secondly, China should clear the functions of prudential supervision, deposit insurance and the lender of last resort, avoid supervision leak and management overlap. CBRC is responsible of banking prudential supervision, market exiting system, risk prevention system and information declaration. People's Bank of China takes charge of the function of the lender of last resort, constituting and carrying out monetary policy and performing macroeconomic control. Deposit Insurance Corporation is in charge of deposit insurance. Thirdly, China needs to constitute a Financial Coordination Committee among the three components, in charge of daily coordination and communication to maintain the high quality and efficiency of information transfer. Fourthly, China must improve the information share system among the three components, make up a developed information share roof where CBRC and Statistical Bureau collect material and data, others involved support the system together, so that the information could be used efficiently and completely.Fifthly, China needs to manage the process of dealing with problem banks, define the time, the degree and the measures for the three components to deal with problem banks in order to enhance the efficiency and reduce treatment cost. Sixthly, China should take compulsive insurance to avoid adverse selection, take variant insurance premium based on risk and variant compensation rate less than 100 percent so as to avoid moral hazard, strengthen the establishment of the risk prevention system and make use of flexible methods to minimize treatment cost, and improve market existing system in order to avoid resource waste. At last, China needs to improve information declaration system and consummate the laws about the Financial Safety Net to build a solid foundation for the operation of the Financial Safety Net in China.