Research On The Rescue Responsibility Of Financial Holding Company For The Subsidiaries

In December,2012, CITIC Holdings became the first financial holding company in PRC. By now, there are over 400 financial holding companies registered in China with huge assets and its development is still stepping up. Judging by the history of the development of financial holding companies abroad and the trend of globalization and mixed operation in financial industry, the trend of multi-business of financial industry in China is irreversible. In contrast to the rapid development of FHC, however, few special laws or regulations can be found regulating them and the legislation is relatively outdated. Since a financial holding company is a company dealing financial business in the form a holding company, unavoidably it faces the problem of risk-prone in the financial industry as well as the issue of parent company influencing the subsidiary’s independence. For example, the moral hazard may occur when the parent company undermines the subsidiary’s independent character in order to achieve more profits at the expense of the subsidiary’s interests. The problem is what kind of liability does the parent company have for the subsidiary if damages has occurred. It is undeniable that the disregard of corporate personality cannot be applied here because of the FHC’s characters. After examining foreign legislation, the rescue responsibility the parent company has for its subsidiary can be effective in addressing this problem. Therefore when China begins relevant legislation, it is worth transplanting the system based on specific circumstances.The research clue of the paper is that based on the related theory of financial holding company and the current responsibility of the parent company of a financial holding companies for its subsidiary, the thesis brings about the problem of lacking regulatory system for the financial holding companies’ responsibility in terms of national legislation and practice and then analyses the reason to the problem before reaching the conclusion that the solution to the problem is to constructing the rescue responsibility a financial holding company has for its subsidiary by focusing on the necessity and feasibility and then makes some proposal.Except for the foreword and the epilogue, the paper can be divided into four parts.The first part of the thesis begins with defining the financial holding company(FHC)and the rescue responsibility, and then it elaborates and analyses the nature and the basic theory of the rescue responsibility.The FHC is a conglomerate whose primary business is financial and whose regulated entities engage to a significant extent in at least two of the activities of banking, insurance and securities.And the rescue responsibility is the capital assistance responsibility that parent company should undertake for its subsidiaries under certain circumstances,which aims to protect the capacity of liquidation. Then this dissertation concludes that it is actually a protective, external and post-supervision.After differentiating and analyzing the theories such as source of strength, too big to fail and hungry wolf hypothesis one by one, the author agrees with the first two theories which can be applied to the rescue responsibility,although all of them are not so much perfect.The second part mainly expatiates the current situation and the existing problems of the rescue responsibility from the aspect of the normative and positive research and then illustrates the reasons. Presently, the financial legislative situation relating to the FHC mainly has the follow characteristics : a)it has existence and development space in legislation;and b)the financial legislation primarily pays attention to the field of supervision;and c) the financial supervision adopts the policy of separate supervision, also strengthening the cooperation by joint forum.According to the legislative situation, the legal regulation of the responsibility referring to the FHC for its subsidiaries chiefly shows the problem of the absence of legislation.Additionally,the legal status of FHC is not yet clear in the country.Then,the thesis empirically demonstrates the absence of the rescue responsibility by the example of Delong,which leads the government to bear the loss and finally the loss transforms into the national tax burden.The factors for the problems not only includes the historical reasons, but also contains the influence of the conflict among the relevant interests.What’s more, the restriction of government intervention is another element for the problem.The third part moves on to the necessity and feasibility of building the rescue responsibility in china from the perspectives of the legal theory, the status of the development of the FHC and the validity of rescue responsibility. The paper holds that to construct the responsibility is the consistent requirements of coordination which is related the rights to the obligations as well as the rights to the power. Also,it can promote the orderly development of FHC in our country, effectively deal with the moral risk and systemic risk. Except for being reflected in improving the existing regulatory system, the rationality of the responsibility itself also is the addition to piercing the corporate veil, as well as the remedy of the disadvantages of financial firewall system.Finally, the author proposes his specific model for the system,such as the legislation model and sample, components of rescue responsibility, including the subject, the object, applicable circumstances, the way of application and supplementary measures for implementation.The thesis argues that legislature should consider adopting centralized legislation mode enumerated combining with generalized legislation sample.At the same time,the deterministic principle, flexibility principle, fair principle and minimum cost principle should be confirmed when the legislature turns the responsibility into legislation. There is no doubt that the subject of the rescue responsibility should be financial holding company.To the object,it shouldn’t contain the securities subsidiary,namely only includes the bank subsidiary and the insurance subsidiaries.The responsibility could be caused by failure to meet the requirement of competent authority that the minimum capital adequacy ratio and financial standing reach the degree of significant deterioration,which the subsidiary cannot pay off its debt and could be prejudicial to the interests of depositors. Certainly, the paper also relates and analyzes the standards of the minimum capital adequacy ratio,significant deterioration,prejudicial to the interests of depositors and to assist the subsidiary resumed normal operations. The main measure of the parent assuming the rescue responsibility is the injection of funding and the acquisition of the fund shouldn’t being by giving up its investments.To implement the system of responsibility, it also needs corresponding measure of safeguard which mainly refers to the legislation should provide the remedy channel of FHC when the supervisor abuses the system of rescue responsibility, and it should cohere with the current supervision mechanism.