Mechanism Design On Financial Holding Company Regulation

With the world economic globalization and the development of financial innovation,financial sectors which are both in terms of organization or business operations have undergone tremendous changes,because financial business boundaries tend to blur and a mixed operation has become a trend in the world wide.The financial industry in UK,USA,Japan and other developed countries have experienced the same evolution which is from the mixed operation to separated operation to Mixed system.Especially in the 20th century 80 years,the emergence of financial holding companies has become a financial mixed trend.Financial holding company model is the development trend of modern finance,financial regulatory system to the flow,to promote financial holding company that reflects the requirements of the times the healthy development of new forms of organization,by means of financial regulatory and supervisory standards for the redesign and continuous improvement,thus covering the financial holding company within the boundaries of effective monitoring mechanism,the real design of the optimal regulatory mechanisms do. View of the current institutional and functional regulation of excess reality of inadequate supervision,China’s regulatory authorities in the development of regulatory measures and means to increase the time to pay more attention to functional regulation,institutional regulation to reduce regulation in order to achieve relative balance.From international trends,regulation of the financial industry will be based on the traditional model,for better supervision of the design method,which is a very valuable area of research. China is in the special period of economic transition,combined with the financial crisis still exists,the financial holding company in this relatively new business and organization mature,to strengthen their supervision and guidance is essential.External supervision of financial holding companies to be combined with the actual situation of China’s economic development,the use of reasonable model and testing methods,the influence of regulatory standards for specific analysis of various factors on how to achieve the efficiency of supervision of financial holding companies to maximize the depth study.The purpose of this paper is based on the establishment way of financial holding companies and the model of our current regulatory approach,with in reference to the Western regulatory model from the China’s national conditions to draw up truly effective regulation of financial holding companies.This regulatory model asks for the design both meetting the original intention to comply with regulatory agencies,but also introduce a perfect market mechanism,so that provide positive incentives to financial holding companies in order to achieve win-win situation for all parties. Incentive compatible financial supervision in the financial regulatory regime is the introduction of more market mechanisms.Incentive compatible financial regulation:the one hand,highlighting the adaptability and flexibility; the other hand,emphasizing the market mechanism and internal constraints into the control range.Incentive compatibility is not only stressed the supervision of financial regulatory goals,but also the main reference to the internal management of the regulated institutions and market constraints and business objectives to choose more effective means of supervision,guidance, in order to these two forces promote regulatory goals to achieve.Through the principal-agent model to further extend out the perspective of incentive theory with by the game between the financial regulatory authorities and financial holding company,the main purpose of this article is to how to maximize the effectiveness of the conditions between the two sides.And through analysing the current regulatory shortcomings in the supervision of the CITIC Group according to the specific regulatory framework. After the financial crisis,the practice of the USA financial regulatory reforms and with our current regulatory status of financial holding companies,at the same time in the light of the new Basel Capital requirements of the agreement,we can put forward policy recommendations from the perspective of incentive compatibility.This article prepares to introduce research and exposition from the following five parts: The first part,it mainly illustrate the theoretical and practical significance in the article,at the same time it introduces the main economic concepts used to make note of the research results were reviewed in the West.This article also briefly points out the ideas and innovation.The second part,this part has a brief introduction about financial holding companies and the relevant content of incentive theory which pave the way for the applications in the regulation of financial holding companies.The third part,this part is mainly introduce and analyse the current major epidemic theory of incentive compatibility.After introduction of the major theories,we reseach the China’s current incentive compatibility among different instituion,we can find the reasons which lead to the invalid regulation.The fourth part,through regulatory in monitoring the actual case of CITIC Group linking with the more mature Western principal-agent model arise out of the incentive theory as the basis,we can design a monitoring system for China’s current regulatory system.Finally,we put forward policy recommendations which on the basis of effective supervision,in order to promote the healthy growth of the financial industry.Financial Holding Company becomes our inevitable choice in the course of future financial system.At the same time,since 2008 the outbreak of the financial crisis in the United States has brought several enlightenments,if we want to improve our economy conditions,we must establish effective regulation.This paper mainly uses Incentive—Compatible theory and learns from the practice of the current financial reforming practices in the USA to design the Incentive—Compatible mechanism of the Financial Holding Company regulation from the china’s actual conditions.In a word,in order to establish an effective monitoring system,when we formulate regulatory objectives,regulatory standards and regulatory means,it is necessary to base on the guidance of incentive theory.In order to realize this objective,we must change the regulatory approach which include from the outside supervision to inside supervision and from institutional regulatory to functional regulation regulatory. The financial holding companies can be allowed to choose their own evaluation criteria according to their level of risk management.Regulatory bodies and financial holding companies through those can achieve the real incentive compatibility.