The Relationship Between Domestic Regulation And Competition In Financial Sector

In the past few decades, the developments of world economy and investment as well as the advancement of information and communicational technology, have provided the financial industry with more opportunities and qualifications for development. The liberalization of trade of financial services has been carrying out further, and the extent of opening in each financial market has increased, both of which lead to the unprecedented fierce competition in financial sector. As financial industry usually has the feature of high risks, and its stabilization, development and effectiveness do have direct effect on a nation's economy. Therefore, it is essential to take some proper regulations in this industry to keep the industry itself as well as the whole economy stable and sound. But before that, we have to consider the following issues such as what influences will domestic regulation have on the competition of the financial industry, how to improve the regulation situation there, etc. And for the Chinese banks who have just stepped into the full-scale opening period, it's sensible to consider the issues in terms of relations between specific regulations and competition, as well as the influences, and what policies can be used to improve regulation.The issue of how regulation affect the competition in financial industry is discussed in this paper through the frame of market structure, market behavior and market effectiveness (SCP). The paper firstly gives a general idea of the history on regulation and competition in the financial industry, and then theoretically probes into the influences of regulation on each section of the SCP frame, as well as the implication for competition. The regulation status quo in China's banking industry is combined into the above theory to analyze the effects of different regulation practices on each section of the SCP frame. Problems such as the incompleteness of laws and rules, the unexpected high barriers of entrance and exit, the lack of deposit insurance law, etc. are raised during the discussion. Based on the above, the paper marches on to discuss the effectiveness of regulation on competition in the country's banking industry. It analyzes the situation in detail in terms of whole competitive power, individual effectiveness, resource allocation effectiveness and consumer welfare and social welfare. The conclusion is as follows: the entire competitive power and individual effectiveness have been improved as well as the welfare of consumers and the society. But for the effectiveness of resource allocation, as different banks have different economic base and different developing history, for the period is too short, the result is just qualified. Finally, some experiences from both developed and developing countries'financial industries'regulation are taken into account, and some recommendations for regulation improvement are given based on the status quo in the nation's financial industry, aiming at prompting the development of the industry.