| Following the trend of liberalization and deregulation in the financial industry, the combination of banking, securities and insurance become more prevalent in many countries. The financial holding company, which can provide a combination of financial services in the group level, has broke up the separation regulation in the U.S. China, which adopts the separation policy of banking, securities and insurance in terms of operation and supervision, will meet strong challenges from universal banks and financial holding companies from abroad following China's accession into the WTO. After examining the theories and practices of western financial holding companies, this paper seeks to highlight some important measures to ensure the development of financial holding companies in China.Relevant Concepts and TheoriesChapter 1 introduces the concepts of financial separation, combination and financial holding companies. The "separation system", which came into being after the "Glass-Steagall Act", represents the separation of commercial banking, investment banking and insurance services. The "combination system", which is just the opposite concept, has two meanings. One relates to the combination of financial services in the same legal person, while the other relates to the combination of shareholding rights of several subsidiaries providing difference services. The financial holding company is the product of the second meaning.The financial holding company has some theoretical and practical advantages and disadvantages versus specialized financial intermediaries. The disputes over the extent of incremental benefits and risks brought by the financial holding company affect the policy-making of supervising bodies.The Combination System in the Western CountriesChapter 2 reviews the development of the modern financial systems in the U. S., Britain and Germany. In the U. S., the separation of commercial banking and investment banking was set down in the "Glass-Steagall Act" following the economic crisis in 1929-1933. In 1998, Citibank and Travelers Group merged into Citigroup, which then became a financial holding company providing all kinds of financial services through its subsidiaries. The "Financial Services Act of 1999" repeals the "Glass-Steagall Act" prohibitions on banks affiliating with securities firms, permitting holding companies to engage in securities underwriting and dealing, without limitation, as well as sponsoring and distributing mutual funds. It creates a framework that will permit the banking, securities, and insurance industries to compete more efficiently and effectively while improving consumer access to financial services, protecting investors, and ensuring a safe and sound banking system.In Britain and Germany, the universal banking system is adopted. Such a system provides more facility for financial institutions to provide diversified financial services, while at the same time, the risks within the institutions will be more than those in the specialized institutions.The Operations of The Holding CompanyChapter 3 and 4 discuss the operations of the financial holding company. In the Group's organizational structure, the subsidiaries have their respective licenses to conduct specific business, while they can also actively co-operate to achieve synergies for the Group. The conflicts of interests among subsidiaries are a challenge, so effective harmonization practices become vital for the smooth running of the holding company.Supervision ProblemsChapter 5 discusses the challenges that the financial regulators of both developed and developing nations now face as a result of financial innovation and changes in the strategy of financial intermediaries. Generally speaking, the need for commercial banks to enter new businesses, given the decreasing importance of traditional financial intermediation, has led to a review of the means for regulating bank activity. This review has affected the separation of the classic financial intermediation activity from other activities, primarily... |
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