Financial Innovation, Research, And Financial Regulation Game

Financial innovation can lead to market failure, so the financial regulation is associated with financial innovation. When financial innovation is excessive, thereby breaking the existing regulation, the financial system will inevitably become disorderly and the original balance is broken, so the financial crisis will happen. The financial regulation will immediately become the focus of attention.In a sense, the U.S. sub-prime mortgage crisis is liquidation for the excessive financial innovation, therefore, financial innovation and financial supervision is a pair of contradiction. What kind of relationship between the two not only is subject of theoretical circles, but also is a problem that the practice sector has to face.In this paper, Finance and Game theory is the guiding theory, the relationship between financial innovation and financial supervision is headline. Reading domestic and international literature of a large number, study the relationship between financial innovation and financial regulation in Game Theory perspective and conducted an empirical study with historical data. At last, we give some proposal for China's financial innovation and financial supervision.The study started from the following aspects:First, we define financial innovation and financial supervision and analyses the reasons of the financial innovation. We briefly describe the Financial Game theory, while has done a preliminary analysis for game features between financial innovation and financial supervision. Second, according to the actual situation of developed countries and China, we respectively construct an incomplete information game model and incomplete information game model between financial innovation and financial supervision and do a comprehensive and systematic analysis for relations between the two. We found that under conditions of complete information, regulatory institutions may deregulation in the short term, so innovation speed. In the long term regulatory bodies strengthen the regulation in order to maintain financial stability, but the financial institutions still have a strong driving force to obtain the excess benefit. Under the conditions of incomplete information the regulatory bodies impose relatively strict regulation for financial innovation, and financial institutions will therefore be relatively inactive. Eventually there is a non-virtuous cycle and a financial repression. Finally, according to China's financial situation and empirical analysis conclusion we make some proposals.