Commercial Banks To Withdraw From The Market

For a long time, with the advance of economy system reform, Chinese financial institutions have accumulated a great many financial risks. Consequently, one part of the financial institutions, especially some medium and small ones, has been developed into "problem-prone institutions" or even "crisis institutions". In the course of the disposal of crisis institutions, it's inevitable for some of them to withdraw from the market. Thus, its necessary to set up the market-quitting mechanism of financial institutions (MMFI) in China. With the market quitting of banks as the center of studies, the article focuses on the market quitting of commercial banks. The establishment of scientific and perfect MMFI could not be realized without the deep research in this field. At the same time, the former, which demands great practicality, cannot be separated from the guide of certain theories of economics. In the first part of the article, the author applies the analytical methods of micro-economy and macro-economy to study MMFI in theory rather deeply. In bank business there exists the uncertainty, which mainly refers to the inner instability of deposits and the uncertainty of gains of assets. Objectively, This kind of uncertainty causes the potential risk of bankruptcy of banks. In the case of no safeguard of deposits, any risk affection may cause the mental panic of depositors and then bring about the panic bank withdrawals. Further, if the panic withdrawals or bankruptcy of one bank is not dealt with appropriately, it may give rise to the storm of panic withdrawals of all the banks and form the systematic crisis. This "Domino Effect" embodies the fragility of bank system. Because of the uncertainty of bank business and the fragility of bank system, it seems especially important for us to establish MMFI and to arrange some single crisis bank to withdraw from the market properly. Bank operations have their own particularity, which mainly refers to special functions of banks. The bank is a media in the conversion from deposits to investment. In many countries, bank business is still one of main channel of implementing currency policies. Its particularity decides its importance of status and also makes itself more easily influenced by the market fails to cause the fragility of system. A stable bank system is very important for the development and stability of a country's economy. The particularity and the importance of stability of bank business not only certify the necessity of the system of deposit safeguard and the net of financial security for the system of final loaners but also certify the necessity of establishing MMFI to make the banks of low efficiency and no ability of existence out of the market and of developing the market efficiency on the base of avoiding systematic risks. And then the article discusses the issues of the net of financial security and the market efficiency. Most of the countries in the world have established " the net of financial security", which plays an important role in the stability of bank business. However, the excessive net of financial security may give rise to anti-choices and risks of morals of deposits and commercial banks. Because of the imbalance of information among market main bodies, the excessive net of financial security and the system of final loaners, commercial banks are prone to make anti-choices and act with risks of morals in order to uphold their own interests, also the deposits may abandon their supervisions and selections to commercial banks. So the property of "the net of financial security" is close related to the establishment of MMFI. This kind of property both guarantees the stability of bank business and develops the efficiency. We must strengthen the market binding force, make good use of market punishment and can not exclude the market disciplines from the net of financial security only in order to excessively protect the bank business. So, now we can say, the main aims of supervisions and controls of one country's bank business i...