Research On Risk Management Of Local Government Financing Vehicles On A Shanghai Bank Case

China’s large-scale investment in urban infrastructure has become a realisticpolicy against the economic crisis with economic recession and increasedunemployment. But as the current local financial capital is far from meeting the urgentand significant investment demands, obtaining credit funds from banks by establishing amode via local government financing platforms has prevailed.With the steady recovery of China’s economy, the risk of local governmentfinancing vehicles backed by commercial banks especially small and medium-sizedones has appeared. At the same time, both existing and potential risks of localgovernment financing vehicles are now emerging constantly. Under this context, astronger control of risks for local government financing vehicles has become a vitalproject for banking risk management。This paper adopts the method of case study and takes a Shanghai city commercialbank as its research object. By analyzing the formation, basic situation and risk level ofgovernment financing debts in this bank, this paper illustrates the importance andurgency of strengthened risk management for commercial banks especially small andmedium-sized ones, according to which, it also tries to propose feasible ways to controlrisk from the aspects of macro policies and banks itself。However, in order to understand and eliminate the risks above, we should neveroverlook the current external frontiers and regulation limits of the financial developingenvironment in China. Only through establishing a standardized local governmentfinancing development mechanism can the objective of risk prevention and mitigationbe achieved. Otherwise, under the pressure of both limited path and dependent growth,commercial banks especially small and medium-sized ones will be faced with nochoice other than abandon development. Under competitive market, local governmentswhich are looking for regional development but with limited financing channels wouldagain acquire credit funds from commercial banks especially local urban commercialbanks in the future, leading to the regression of the mechanism. Therefore, the ultimatepolicy must be based on setting up a market-oriented financing platform, as well as a public, transparent, standard trading space where risks can be acknowledged andcontrolled. In this way, commercial banks can provide multiple market services likeloans, underwriting and other financing services through which credit risks can beacknowledged and controlled.