Financial Holding Company To Increase The Liability System

As an effective mixed-financial organizational structure, financial holding companies have achieved rapid development and occupied a dominant position in the financial industry in western countries. According to the traditional theory of company law, as the shareholders of banks or other financial subsidiaries, financial holding companies should only assume limited liability. However, financial holding companies possess two attributes of both "holding company" and "mixed financial", the superposition of this two attributes make the legal and economic relations between holding companies and their subsidiaries complex. As the special status of financial institutions in our society, foreign legal and regulatory bodies set up an enhanced liability system for financial holding companies and their subsidiaries. The development of expanding obligations of financial holding companies shows the rapid changes in the financial regulatory system and the breakthrough in limited liability for traditional companies.Although the existing legal provisions of Chinese legislation prescribe the unmixed-financial organizational structure in financial industry, the development of financial holding companies in China is still very rapidly. However, such development lacks of the regulatory regime and related legal basis for financial holding companies, which makes China's financial holding companies face much operational risk. Delong case revealed the weakness of Chinese legislation and the lack of financial regulatory system when dealing with new financial crime in transition time. The case also exposed Chinese existing financial legislation had been lagging behind the development of financial holding company. So it is urgent that special legislation be constituted to regulate the development of financial holding companies. The case of China Everbright International Trust and Investment Corporation reflected the negative impact of the expanding obligations when blindly enhancing liability for financial holding companies. Within the framework of existing Chinese legal system, only a reasonable application form for the expanding obligations which is well designed and debugged could promote the regulatory development of financial holding companies in China. These issues all put forward an objective requirement for the academic study of expanding obligations of financial holding companies. This article takes the perspective of case studying and analyzes the enormous damages to the interests of small or medium-sized financial institutions and their shareholders caused by the financial holding company in Delong case who use its majority shareholder status to engage in high-risk activities through financial subsidiaries, which reflected the risk of moral hazard faced by China's financial holding companies and the deficiencies in the expanding obligations system in China. So, to enhance the liability of existing Chinese financial holding companies thus avoid similar finale of Delong becomes an important subject. This article also adopts the case of China Everbright International Trust and Investment and makes some comparative analysis of existing problems of expanding obligations system, pointing out that the reasonable designing and debugging in the transplant of this legal system is necessary. Finally, this article tries to do some useful exploration in building the legislative framework of expanding obligations of Chinese financial holding companies.