Financial Asset Management Companies Operating Mechanism

Non-performing assets of commercial banks are a universal Phenomenon with international presence. Countries all over the world have gained common understandings and experiences in their endeavor to resolve such non-performing assets. One of them is to set up special organizations of bad asset disposition, which are granted with special legal status and policies, Because of the drastic rise of bad loans in real estate business, In 1989,The American commercial and savings banks were facing the crisis of large-scale payment, endangering the American Deposit Insurance Corporation (FDIC), the well-known Resolution Trust Corporation was set up via a Congress legislation for the purpose to dispose of the non-performing assets that might have led to financial crisis, but also achieved the goal of optimizing bad asset recovery through the special disposition by a special organization. This American practice was soon adopted the Asian financial crisis in 1997, countries like Malaysia, Thailand, Japan and Korea set up their respective asset management companies.Non-performing assets have maintained a very high proportion in Chinese banks due to historical causes and the current situation. There were established 4 asset management company in 1999, Sinda, Huarong, Great Wall and Orient asset management companies. And entered thestage of practical disposition of non-performing assets. Asset management companies are set up to resolve financial risks. This goal is achieved through the establishment of the four such companies in China and the accomplishment of acquiring non-performing loans. Such potential crises as payment crisis financial crisis in the state-owned commercial banks caused by non-performing loans have been transformed to those of huge loss due the inability of the asset management companies to maximize the recovery of the loans made, Such loss may amount to huge sums with extremely high cost and would eventually undertaker by the State.As shown in the international practice, asset management companies all over the world are transitional institutions granted with special legal status to carry out special historical undertakings and generally withdraw after the completion are of the same nature. Thorough studies should be conducted on the major determinants and problems during the existence of asset management companies in China; the withdrawal model, major obstacles and the exact withdrawal mechanisms of such withdrawal of those companies. By studying and analyzing the experience of such asset management companies overseas, the future directions of the Chinese asset management companies could be determined.