Policy Banks: Policy And Financial Unity

Policy banks, or policy-oriented banks, in comparison with commercial banks, are an important part of the modern financial system. With their unique features, functions, and operating principles, policy banks have a shorter history and fewer theoretical studies compared with that of commercial banks. There are no systematic studies on policy-oriented banks in the traditional western financial theories, and in China the study began only after the economic and financial reforms in the 1 990s. As the country is experiencing a transition from a centrally planned economy to a market-oriented one, the government and market, as the two primary sources for the allocation of resources, are getting increased attention from both policy makers and academics. In this case, the policy bank, a market-oriented instrument administered by the government, is getting a higher standing in the whole financial system. However, there are .no laws or ordinances specifying the properties or market rote of policy banks in China up till now, and misunderstandings are still existing concerning policy banks. Therefore, a better understanding of the policy banks becomes extremely important in both theoretic senses and realistic senses. This study was initiated to respond to the increased interest in policy banks in such circumstances. Through the historical study of the founding and development of policy banks, this report analyses the unique characteristics of policy banks and that of China Development Bank in particular. The report consists of six chapters. The first one depicts the history of policy banks originating in the late 19th century in the farming sector in France, mushrooming in the 1930s after the Depression and getting further developed after the 2nd world war, each period of development being backed up by a specific economic theory. By reviewing the development of policy banks, the first chapter reveals connections between policy banks 5 I.- and economic development, golremffient and the market mechanism. The second chapter describes the general characteristics of policy banks and their special role in the market, which is achieved through the analyses of market failure and government failure in the market mechanism and the way out. Owning to its uniqueness of combining both financial and policy features, policy banks succeed in solving the above two failures. They are policy-oriented because of their non-profit operating goal, the policy-oriented management of funds and close relationship with the government. They are financial institutions at the same time as they abide by the capital adequacy ratio, the profit requirement, and the operating rules for financial institutions. Above all, they are credit intermediaries. The third chapter turns to policy banks worldwide, especially cases of World Bank, European Investment Bank, Japan Development Bank, Kreditanstalt fur Weideraufau, Korea Development Bank and development Bank of Philippine. Through the comparative study of those international policy Banks, it comes to the conclusion of basic characteristic of policy Banks. The fourth chapter focuses on the development of policy banks under globlization circumstances and the tendency following the Asian currency and financial crisis, including some general perceptions. As a result of the economic globlization and fina...