Discussion Of Perfection Of Domestic Commercial Banks’ Connected Transactions Regulation System – Lessons From America’s Legislation And Supervision Of Commercial Banks’ Connected Transactions From 1930 To 2008 Financial Crisis

Like other companies, commercial banks will, from time to time, reasonably make use of connected transactions to achieve optimized allocation of resources within their affiliated enterprises or corporate group. That is to say, connected transactions conducted by commercial banks are unavoidable. From the commercial perspective, connected transactions could lower the transaction cost, increase the rate of the capital turnover, strengthen the cooperation between the affiliated entities and help to achieve the economies of scale within the group company. Additionally, the price of connected transactions could be arranged to lower the tax payment so as to reduce the operation cost. However, due to the specialty of commercial banks, unfair connected transactions by commercial banks will threaten the public interests and even the financial stability and safety. Therefore, some unique regulatory measures have been designed to regulate commercial banks’ connected transactions.The twofold features of commercial banks’ connected transactions become increasingly prominent during the transformation to financial freedom and universal banking in China, which raises higher requirements to the Chinese regulators. However, the current regulatory ideology of domestic regulatory authorities is out-of-date and cannot achieve the goal of regulating connected transactions and protecting healthy and soundness of commercial banks.Based on the analysis of current status and the trend of the connected transactions of domestic commercial banks, this article will introduce the legislative practice of connected transactions of domestic commercial banks and point out its deficiency. By presenting the development of legal systems of domestic commercial banks’ connected transactions in America, this article will give some suggestions regarding perfection of relevant legal systems of our country.This article will be dived into four chapters:In Chapter I, current status of the domestic commercial banks’ connected transactions will be discussed in detail which shows the exact challenges, such as emerging of new type of connected transactions and entering into universal banking area, faced with by the relevant regulators.Chapter II will introduce two polices on domestic commercial banks’ connected transactions: the segregation of financial services policy implemented in 1993 and the Administrative Measures for Related-party Transactions between Commercial Banks and their Insiders or Shareholders issued in 2004. The analysis of the history background of two polices will demonstrate the deficiency of the current supervision and regulation on connected transactions of domestic commercial banks.Chapter III will conduct a comparative study by studying the segregation of financial services policy implemented in 1933 Glass-Steagall Act and Section 23 of 1933 Federal Reserve Act. By studying the history background and theoretical basis of the amendment of Section 23, we conclude that entering into the universal banking area creates huge difficulties to the supervision and regulation of connected transactions conducted by commercial banks. In order to maintain the stability and safety of commercial banks, the ideology of the regulatory methods should be modified and regulatory capability should be strengthened.On the basis of the introduction and analysis of the regulatory system of the commercial banks’ connected transactions in America, Chapter IV will produce several concrete suggestions towards perfection of relevant legal mechanisms in China, mainly including clarification of related legal concepts of connected transactions, enhancement of the right of discretion and interpretation of the regulatory authority and perfection of the reporting system of connected transactions.