Researches On The Bank Insolvency Legal System

With the continuous development of the market economy, the competition oetween market entities is intense. Commercial banks and other companies are all the equal market entities; they all should follow the "fittest" market operation rules. The defeated banks always take the way of bankruptcy to exit the market. As special market entities, they have the characteristics of high risk and infectivity. When commercial banks are facing bankruptcy, the existing bankruptcy legal system can’t eliminate the strong negative external effects of bankruptcy. Therefore, we need to construct a special bankruptcy legal system of commercial banks. This is also the need of maintaining market discipline, optimizing the allocation of financial resources and achieving the legal system idea of financial security.At present, our country has not established the special bankruptcy legal system. In our country, the regulations of bank bankruptcy are scattered through many different laws. These regulations lack systematicness and operability. The commercial bank bankruptcy legal system of our country exists the following problems. Firstly, the bankruptcy legal system is not sound. There are many awkward questions in practice due to the lack of special bankruptcy legal system. The Hainan Development Bank, which is closed in1998, is still in the process of bankruptcy liquidation. Secondly, the administrative intervention of the government is excessive. The problem banks of China, which need to exit the market, are mostly under the intervention of the government. The excessive administrative intervention has violated the market rule and affected the optimal allocation of financial resources. Thirdly, we are lack of the effective risk alertness-forecasting system and the crisis-management mechanism. Because of not effectively predicting the risk and not timely dealing with the crisis, we often miss the right time of rescue and the cost of rescue is expanding. The reasons above are even cause unnecessary bank bankruptcy. Fourthly, we are also lack of the deposit insurance system. The lack of the deposit insurance system is bad for protecting depositors’ benefits and maintaining the public confidence of banking system, and even does harm to the financial security and social stability. Fifthly, the level of the financial supervision is not high and the regulatory restriction mechanism also exists many defects. The regulatory responsibilities are not divided and there is no stipulation to restrain the supervisor.To cure the above problems, this paper presents some ideas to build the bankruptcy legal system of commercial banks. Firstly, we should perfect the bankruptcy legislation. We should choose the special legislation and the legislative principles of early intervention and the lowest cost. We also should choose the mixed dominant model. In this model, the judicial power and administrative power can cooperate with each other. Secondly, we should perfect the program settings of bank insolvency to meet the special needs of commercial Banks. We should determine the bankruptcy applicants and bankruptcy standards in the initiator, and perfect the regulations of the takeover agency and conditions. We should determine the applicants and the planning bodies of the reorganization procedure and the reforming measures. We should choose the suitable property disposition and the suitable discharge order. Thirdly, we should set up some supporting systems, such as the deposit insurance system, the risk pre-warning system and the information disclosure system. In the deposit insurance system, we should choose the suitable form of insurance agency, the suitable way to participate insurance, the suitable premium rate and the suitable compensation system. In the risk pre-warning system, we should improve the methods of risk identification, perfect the risk rating system, and highlight the focus of risk monitoring. In the information disclosure system, we should enhance the standardization and operability of the information disclosure regulations, strengthen the supervision, and clear the regulatory responsibilities. Fourthly, the government needs a suitable position in the commercial bank bankruptcy legal system. We should bring the market into full play and reduce the government’s administrative intervention. Fifthly, we should optimize the financial regulation and improve the effectiveness of the commercial bank bankruptcy. We should strengthen the independence of the regulatory authorities and coordinate regulatory responsibilities among the People’s Bank of China, the China Banking Regulatory Commission and the Deposit Insurance Agency. Last but not least, considering that small and medium-sized banks have a weak position in the banking system and their abilities of resisting risk are weak, we should establish a special mechanism of crisis management and bankruptcy for small and medium-sized banks. This measure can help the small and medium-sized banks to maintain survival and development, and can help the banking system to maintain safety and stability.