Bank regulation and supervision of China

4. Summarize !

With the increase of competition of the financial market, the operation risk in banking sector is going up. Lin and Wang (2011) reported that in order to take risks, the banking regulation system should conduct combine with both macroprudential regulation and microprudential regulation. Liu (2009) also indicated that the weakness of the banking system of a country can result in the instability of financial system within both that domestic and international, and “The need to improve the strength of financial system has attracted growing international concern.” So it’s clearly that if a country with unstable financial system could infect other countries, even could occur a global crisis, for example the Greece crisis. In addition, due to the development of international trading, the trend of the integration of the world economy is more and more obviously. The international operation for banking sector is quite popular. Therefore, the banking regulation and supervision trend to be a very important subject in the financial market.

China Banking Regulation Commission (CBRC) was set up in 2003, up to now, the regulation system has made a large improvement, but the consummating of banking system has still been discussed. In my opinion the regulation and supervision system need to combine with the international successful experience, and also should learn the parts of Basel Accord which suit for China. Meanwhile in order to lower the operation risk in banking industry, strengthen the risk management is very important for China.

Bank regulation and supervision of China

3. The personal suggestion to the problems.

Barth et indicated that “Countries everywhere are therefore encouraged to do everything possible not to impede the development of financial markets, including the banking system, which is a particularly important component.” That is to say if the banking system or banking regulation and supervision exists some serious problem, it’s necessary to find the ways to get out of the problem.

In the last post, I did the research about the problems about Chinese regulation and supervision. And at this blog, I will focus on the solution of the banking regulation and supervision.

Laws and regulations for regulation system should be completely.

The popular suggestion which comes from most experts is to modify and perfect the existing laws, rules, provisions. The outdated and useless rules should be prohibited. And for the laws shortage and mutually contradiction, it should be revised and improve immediately. 

The bank regulation and supervision should be sustaining.

Improving the efficient of recurrent inspection and random inspection should be a good way. If the supervision department could make a specific plan before they carry out the regulation behavior, this would be more convenient to regulate. Strengthen the bank regulation and supervision persistently is not only the best method for banking system, but also the desirability for the stable financial market.

The personal quality of regulator need to be improved

The ideal solution is to establish a professional, international supervision team. The regulator should be the professional staff, so the restrict quality examination is absolutely essential. Also the regulator should be trained at a specialist agency.

The internal management of Bank should be improved.

The internal banking management and operation is an important part of banking system, otherwise, if the management of this part declines, which will affect the whole financial system.

In order to improve the internal banking system, the first stage should be focused on building a scientific and strict internal and external monitoring system; meanwhile, the supervision department should take the combination of the recurrent inspection and random inspection for the bank. There is another solution, which are the employees should have the induction training. The induction training can improve the personal self-discipline, and it can perfect the internal banking system well.

Bank regulation and supervision of China

2. The problems existed in China. 

According to the Laws of China, we can get that before 1995, the banking regulation system was much inferior to most of the developed countries. However in 1995, the Law of the People’s Bank of China and the Law of Commercial Banks established that the People’s Bank of China is best place to regulate. After that, the People’s Bank of China established related rules to regulate the banking system. Although there are enough Laws and Rules to regulate and supervise the banking system, but there still have some problems existed in China.

Laws and regulation for regulation system is incompletely.

In recent years, Li Jinhua, Auditor-General, repeatedly proposed in the annual auditing report on NPC Standing Committee that there existed the illegal behavior in the financial area. In China, there are 15 laws of finance, and there are more than 40 financial regulations right now, also the people’s Bank of China has estimated more than 1000 rules already. But the legally binding of these laws and regulation is not too big to regulate and supervise for the banking industries well. So the legal system is incompletely yet, which could hinder the legalization of the bank Supervision.

The bank regulation and supervision are not sustaining.

In China, the work of regulation and supervision are not sustaining, as it has problems of paucity of checking, which means, in some status, the spot checking has the problem of continuity lacking, a huge amount spot checking are arranged temporarily. And the result of checking is not always proper. Repetitive inspection can be seen everywhere. Due to the efficiency of regulation and supervision is not too high, solving the present problem become to the challenge.

The personal professional skill of regulator is not quiet in a high level.

The regulator should be the professional employees. In China, It’s human to regulate, to find and evaluate the risk of bank, so the error could happen. It’s necessary to improve the ability of regulator. In the foreign country, they are focus on the training of the supervision staff, and the training is very strict. For example, they should learn the laws, computer technique, and accounting knowledge and so on. But now in China, the regulator is not quite rational, and professional.

The internal management of Bank is confusedly.

In 2007, China Banking Regulatory Commission reported that strengthening the regulation of bank’s internal system tends to be a very important topic. Few years before 2007, internal of banks in Heilongjiang Province frequently occurred the serious financial cases. Because sometimes the regulation was too weak, which make the internal staff can use simple tool to steal hundreds of millions of property. So experts pointed that the illegal financial acts of banks happened frequently which indicate the banking sector itself have the seriously flaw. To perfect the internal banking system becomes a serious issue.

For suffering these problems, the solution will be discussed in the following part.

Bank regulation and supervision of China

1. why we need bank regulation and supervision？

Since 1990s, banking crises is becoming one of the most concerned part in the world. Especially, after the Asian financial crises in 1997, most of countries in the world tried to strengthen the regulation of banking industry. So, the bank regulation and supervision tend to be much more essentially. As we know that, the banking regulation and supervision is controlled by government. The supervision department use laws, institutions and rules to regulate the security of financial system, also protect for the customer’s interests.

In China, the banking sector developed very fast in recent years, the management capability is increasing during this time, particularly after accession to WTO, some foreign banks flowed in, which affect the current banking regulation, and also can make the financing system changed. The banking regulation and supervision goes to more imperative in the financial market.

According to Liu (2009), at the end of 2008, the total assets of China’s banking industry is  62.4 trillion RMB, which went up about a half than that in 2003. Meanwhile at the end of 2008, the Industrial and Commercial Bank of China, China Construction Bank and Bank of China became to the most three influential banks in the world. From the above figures we can get that Chinese banking industry developed rapidly, so we need a high level regulation institution to protect the financial market. http://www.asianbankerforums.com/summit2009/highlight_liu.php

The purpose of Chinese banking regulation and supervision mentioned by Deng (2009) is to make the banking supervisory procedures in a standard way; also it’s possible to reduce the financial risks in the banking sector, and to give a promotion for building a safe, reliable, and rational banking industry in China.