Research On Prevention And Governance Of Moral Hazard For Banking Sectors

Since the emergence of morality, it is possible for human behavior to obey to or break the moral rules. This is also true to the banking sector, which is the special enterprise of monetary management. The meaning of banking moral hazard is that the business dealing subjects and the operators, who want to improve their own benefit to a maximum, break the principle of honesty and credit or the regulation of objective contracts and then do great damage to others' interests.Banking moral hazard poses great threats to the banking asset structure and security, the bank getting ability and level, the reputation of banks and the control over other risks. In addition, it will increase the bad assets and make bank face the disaster of bankruptcy. In recent years, a large number of major cases and important cases are emerging in China. This disturbs the normal operation of financial order, causes a great loss to the banking fund and national property and has a bad influence on the bank reputation. It is easy to see that the analysis of those cases all have something to do with moral hazard. In China, the focus on the banking moral hazard only begins in recent years. Many economists attribute the Asian Financial Crisis in 1997 to the moral hazard which they think existed everywhere. Nowadays, moral hazard has become the main reason for the bad assets in Chinese banking sectors and the major factor influencing the financial stability.How to prevent and govern moral hazard is an unavoidable problem facing us now. To work out an appropriate treatment, this paper will formulate the reasons of moral hazard, such as the inefficiency of internal control, lack of external supervision, the loss of the credit ideas of marketing economy and the bad credit environment and etc. The main objective of the paper is to prevent and resolve moral hazard in banking sectors and avoid the occurrence of financial cases by suggesting some optional systems and countermeasures.Moral hazard was brought into China in 70s of 20^th century and there are still few researches on it. Nowadays, people have different understandings of the meaning of moral hazard and some even hold misunderstanding. They mix up the moral hazard and professional morality. Therefore, this paper will explain the basic knowledge of moral hazard in chapter two, including the definition, characteristic and forms of moral hazard. The harms and causes of moral hazard will be elaborated in chapter three. Then I put in chapter four the main points of the paper, which are the measures and suggestions of preventing and resolving banking moral hazard. They are the reforms of property system in banking sectors; the reinforcement of internal control and external supervision; the establishment of deposit insurance system; the perfection of credit system and the creation of better corporate culture.