On Financial Holding Companies

In 1970s, since "Blliton Forest System" collapsed, international economic and financial environment has changed greatly. Capital market has growing rapidly, financial innovation has been emerging endlessly, financial liberalization tide has swept across the world, developed countries have been releasing financial supervision in succession, financial globalization has emerged evidently, and financial institutions conglomeralization has become a prominent trend. Under those conditions, capital market has become the essence of finance system, traditional commercial banks have lost their dominant position, the difference among financial institutions has become indistinct, and there is a trend of integration in the function of commercial banks and investment banks. Under this kind of background, as a kind of universal structure innovation of financial institutions, financial holding company has been paid close attention recently. From the universal banks under Germany traditional universal banking system, financial conglomerates emerging after the "Big Bang" financial reforms in British and Japan at the end of the 20th century to financial institutions innovated for evading professional financial management in America, the organization form of financial holding company is very popular. Especially in America, after more than half a century development, from original multiple banks holding company, one-bank holding company has become financial holding company. Financial holding company's universal management didn't become legitimate until the issuing and implementation of< Finance Service Modernized Act of 1999>, which indicated American finance was on the way to financial integration. In the future, the organization form of financial holding company will become more and more important. This isthe main reason why I choose "financial holding company" as my thesis subject. In the first part, I make the basic idea of financial holding company firstly; enumerate the definitions of the financial holding company at home and abroad; compare names and concepts close to financial holding company. Then I give a brief retrospect to the development background and course of financial holding company in western developed countries. Taking Citigroup for example, I mainly introduce the development of financial holding company in U.S.A. Besides, < Finance Service Modernized Act of 1999> is involved, which has a great influence on the development.In the second part, I make detailed analysis on the inherent competitive advantage that the financial holding company can obtain. Firstly, financial holding company can theoretically obtain economic advantage of scale and scope; however, this kind of advantage is not what financial holding company is born with. Then I put forward several terms that financial holding company must have in order to obtain large-scale production and range economic advantage. Secondly, in synergic aspect, there is a model, which is used to make an analysis between cost and profit. The last one is the risk descending advantage.The development of financial holding company has brought new challenges to financial supervisors, because the organization form of financial holding company has its own special defects. And these defects need external supervision. This is the main content of the third part of the thesis. Moral hazard and reserve choice caused by commission and agent, coordination problem and internal transaction are the main defects.Financial holding conglomerates are in large scale, and generally speaking, they are very important in the financial system, so once their internal organization and transaction problems become worse, the stability of the financial system will be influenced. In this case, BaselCommittee carried on the investigation on different countries' financial supervision to financial holding companies and has put forward the total supervision principle. Britain and the U.S.A. both notice the problems of financial holding company at the time of establishing the i...