On The Mechanism Of Banking Supervision In China

Along with the marketeration of financial reform speeding up and banking management level raising up, and in consideration of foreign banks entering our country in a large number after we entering WTO, the competition hi banking industry will get fierce and the threatening of banks bankrupt will get greater.In order to prevent and defuse financial risks, we must strengthen banking supervision. But there is cost in bank supervision. If we strictly regulate like we did in the past, the risks may be controlled temporarily, but that will be hi the price of lowering financial efficiency. So, there is an efficiency issue in financial supervision and we must form and amplify supervision mechanism to raise supervision efficiency.1.Formation mechanism of banking supervision. The characteristics of high leverage, high risk, high interrelationship with economy and symmetry information in banking industry devote to it's inherent shortcoming of fragility and strong externality which make market mechanism failure in some extent in banking industry. It is necessary for government to interfere and supervise to maintain financial stability, Supervision becomes more important hi present high risk situation and trends. Yet, supervision is not equal to regulation. In order to raise supervision efficiency, we must form stratiformis supervision system by forming suitable supervision mechanism.2.The defects in our banking supervision mechanism at present time. Influenced by political and economic environment and financial system itself, there are many shortcomings in our present banking supervision mechanism: Too much regulatory supervision and less prudential supervision; excessive government intervention; lack of owner's supervision and central bank supervising exceeding it's authority; limited supervisory scope and backward supervisory instrument; strong mandatory character and weak incentive one in supervision mechanism ;unclear and asymmetry of power-responsibility inside supervisory organ; and lack of the mechanism of early-warning, prevention and resolution to macro-financial risks.3.Formation of the ulterior risk control mechanism hi commercial bank. The interior risk control mechanism in commercial bank is the basis of banking supervision and stability of financial system .we should introduce modern instrument measuring financial risks: VAR; take advantage of accurate and overall index measuring achievement: RAROC; form multilayer risk control mechanism with the nature of incentive compatibility constraint; and boost each branch, each level of institution and each staff to concern bank's revenue and risk simultaneously.4.Formation of the mechanism used by supervisory authority to supervise banks. Supervising externally by supervisory authority is the main duty of bankingsupervision and key of financial system stability. At present time, our country's exterior banking supervision is backward with regard to international trend and domestic reality and in the state of inflexible at control, disorder at deregulation'. The main cause is lacking of a set of reasonable supervision mechanism. So, we must make great efforts to form the exterior supervision mechanism. Take the requirement of 'New Capital Adequency Framwork' issued by Basel Committee as near target. Our future target is to realize equilibrium of supply and demand of supervision based on cost-return analysis and determination of best supervision boundary.5.Formation of the mechanism used to supervise supervisors. Supervising supervisors efficiently is the institutional assurance for high efficiency banking supervision. It is necessary to adopt efficient institutional arrangement to avoid supervisors loafing on their job, being captured or obtaining private interest with their power. It include form, amplify and carry out all kinds of rules and regulations strictly in daily work, form incentive mechanism that combine standing wage with incentive wage and promotion system, and reinforce punishment to whom obtain private interest with their power.6.Form...