Font Size: a A A

Separate Legislation Research On Commercial Bank Bankruptcy

Posted on:2013-08-10Degree:MasterType:Thesis
Country:ChinaCandidate:L ChengFull Text:PDF
GTID:2256330401951000Subject:Economic Law
Abstract/Summary:PDF Full Text Request
This paper stands as the first systemic study in China on the specialty of the CommercialBank Bankruptcy resolution mechanism. The history of the world financial regulation andbanking regulation is shadowed with crises. Each improvement in the regulatory mechanismis closely linked to the crises resolution. Thanks to the specialty of banking business, thetreatment of commercial banks falls apart from general bankruptcy law. This is enlighteningfor China in the construction of marketing economy. In order to assist the efforts to install acommercial banks resolution mechanism in China, this paper focuses on such issues as whatthe specialties of Commercial Bank Bankruptcy resolution are; what legal issues arisetherefore; how to understand, evaluate and deal with those issues; what lessons can Chinadraw from there; and lastly but most importantly, how to improve the current legal system inChina.Its first and foremost difference is its aim. For general bankruptcy code, the aim is tomaximize the creditors’ interests, to treat all creditors equally and fairly, and to ensure anorderly retreat of the failing entities from the market. While for Commercial Bank Bankruptcyresolution mechanism, there is one extra aim, that is, to sustain the public confidence in thebanking system and keep the system remain stable. This extra aim is more important than theother two in the case of Commercial Bank Bankruptcy resolution. To fulfill this aim, thejudgment of “failing” is neither a liquidity standard nor a balance sheet standard, but a newlyintroduced regulatory standard. In terms of the legal framework, many countries adopt aspecial one besides the general bankruptcy code; or special rules for commercial banksresolution in the general bankruptcy code. More than often, it is the regulatory agencies thatclaim commercial banks’ insolvency. But, as expected, the specialties surely arouse legaldisputes.To deal with the commercial banks, regulatory agencies expanded their power, which notonly includes the early intervention, but also the power to declare the commercial banks’insolvency and to nominate or even approve the receiver of the banks. This power drawsworry of whether the banks’ creditors can be treated fairly. To resolve the commercial banks,regulatory agencies must have some discretion power, but this authority can lead to regulatoryforbearance or over regulation. The specific restrictive authorization is a wise choice forChina that can enhance the regulatory independence, transparency and accountability.The above analysis matters much to help install and improve the current legal framework in China. First of all, the restrictive power of regulatory agencies shall be specified to avoidregulatory forbearance, to enhance transparency and accountability, and to protect theagencies from political pressure. But the restriction doesn’t mean a complete elimination ofregulatory discretion. Secondly, with the presence of necessity and feasibility of installing thedeposit insurance mechanism in China, the more important issue to consider is how to controlthe moral hazard in the design. Finally, the receivership and conservatorship mechanisms inChina legal framework shall be improved, maybe in the form of a State Council Regulation.This paper mostly adopts comparative study approach and economic analysis approach. Itpoints out that the specialty of commercial banks resolution mechanism derives from thespecialty of banks’ balance sheet, being liable to banking system instability and the existenceof deposit insurance mechanism. The specialty includes its aim, procedures, resolutionchoices, the standard and the extension of regulatory agency’s responsibilities. The extensionof responsibilities makes special requirements necessary for regulatory agencies to avoid bothregulatory forbearance and over regulation. The paper also discusses the core functions ofdeposit insurance agency and its alternative programs. The key to its success is to control themoral hazard. To understand those mechanisms will benefit China a lot in the process ofconstructing our Commercial Bank Bankruptcy resolution mechanism.
Keywords/Search Tags:The bankruptcy of commercial bank, Expansion of regulatory power, Discretionary power, Legislative mode
PDF Full Text Request
Related items