The Study On The Financial Control Mechanism Of Financial Holding Company

This paper focuses its study on the topic of financial control mechanism of financial holding companies. Under the guidance of relative theories such as macro-economic control theory and financial control mechanism and with reference to new modern commercial bank capital management technologies, this paper aims to explore and design an efficient financial control system for the parent financial holding companies. This kind of financial control system should serve the following functions: first helps the parent company to exercise financial adjustment and control over all its subsidiaries and the group as the whole; second helps to maximize the group's risk-benefit balanced value.Financial holding companies are special enterprising consortiums involving in money and credit businesses with financial assets and liabilities as their main operation objects. Due to the uniqueness of the industry they are in, financial holding companies have complex organization structure and their financial control has its own unique operation rules. This uniqueness of the financial holding companies is independent of the control theories of general enterprising consortiums both in the inherent mechanism and the existing form. From the perspective of financial control, financial holding companies have their own financial management characteristics with parent company's financial control as the core, capital and financial relations control as the major content and risk control as the most remarkable feature; the financial control mechanism features stratification, co-functioning, magnification and administration. In his monograph Internal Control System of Modern Commercial Banks, Scholar Luhong defines systematic methodology as a scientific methodology of using systematic perspective to comprehensively and precisely study the objects and figure out the best functions based on the inter-relation and inter-action between the whole and the part, the whole and the environment. Based on these financial characteristics of the financial holding companies, this paper reviews the study object in its own system and defines that the financial control system of financial holding companies is made up of capital subsystem, financial relationship subsystem, financial information subsystem and financial control method subsystem.Enterprising parent financial holding companies deal in financial businesses of its own and at the same time take the responsibility of exercising financial control on their subsidiaries. If we broaden our view and consider the financial holding company as an economic entity, the financial control of the parent company is surprisingly similar to the macro-economic control. Indeed, the parent company does play the key role of macro-controller in the group. Inspired by this, the study suggests that the parent company, as the controller, should exercise financial control on its subsidiaries and the group by establishing capital control and financial relations control system.The uniqueness of the financial Industry determines great differences between the market regulating requirements on financial companies and general enterprising consortiums. Therefore, the parent financial holding company should start from the perspective of exterior capital supervision when exercising capital control. In the study, the writer suggests to leverage the new commercial bank capital management technology- economic capital management technology, specifically, the economic capital's functions and set up risk-benefit capital control mechanism in the parent financial holding company and realize the parent company's control target by exercising control on capital adequacy and return, capital raising and surplus and capital operation and so on. At the same time, the parent financial holding company should also exercise financial control on its subsidiaries with respect of establishment of financial governance system and financial culture, and therefore to help the group's financial entity to realize the goal of aligning the responsibility, the power and the benefit, driving a rational financial structure and unifying the financial culture, and to ensure the harmony among each level of financial relationships and achieve the financial control target. This is also another main content of the studied financial control mechanism of the financial holding company—the financial relationship control.The paper is divided into four parts, consisting of six chapters. The first chapter makes the first part. This part mainly identifies the basic concepts and types of the financial holding company and the sample type studied in the paper. It points out that the financial holding company should be defined from both a broad and narrow aspects. This paper adopts the definition given by the Basel Committee on Banking Supervision and conducted its study from the parent company's perspective focusing on enterprising financial holding companies. In this part, the writer also summarizes the organizational and financial characteristics and the financial management features of the financial holding company. The writer holds that the financial holding company is the result of the financial capital centralization and operation, which further forms a capital operation structure in which the organizational entities are relatively independent and the parent company owns the absolute control, a massive scale economy and a scope economy with diversified operation in the Industry and a micro-environment in which the parent company provides macro-control in the management. All these organization characteristics lead to special financial features and forms unique management characteristics, that is, financial holding company's financial management is centered on parent company's control and the parent company's financial control is risk-benefit control focusing on capital as the key control content.The second part consists of the second and the third chapters. This part mainly analyzes and studies relevant theories on financial holding company's financial control mechanism and preliminarily establishes the financial holding company's financial control mechanism framework. The second chapter first reviews research accomplishments and current situation on enterprise financial control mechanism, based on this, puts forward some new ideas on re-categorizing and researching and extends the concept and extension of the enterprise financial control mechanism. The paper holds that the financial holding company's financial control mechanism is, in its essence, a system and a institutionalized arrangement designed according to the characteristics of the organizational structure, the requirements of the corporate governance structure and financial features, and a combination of controller, the control objects , a series of policies, objectives, method, organization and process. Therefore the goal of the financial holding company's financial control should be closely in line with the financial goals , that is , focusing on the enterprise's own existence and development and realizing the maximization of the enterprise's value. The third chapter is still theory part, mainly describing the structural function, conducting mechanism, principal and methods of the financial holding company's financial control mechanism. This chapter studies on the objects,contents, means and methods and internal control environment of the financial holding company's financial control mechanism from the structure aspect, elaborates on the subsystems which constitute the financial control mechanism such as capital subsystem, financial relationship subsystem, financial information subsystem and financial control method subsystem and their relationship, summarizes stratification, co-functioning, magnification and administration features of the financial control mechanism , and then outlines the operational mechanism of its financial control vertically and horizontally and elaborates on the four principals and methods of parent company's financial control.Part 3 comprises of Chapters 4 and 5. I don't have the space to elaborate all the four subsystems of financial control, instead I just focus on the core of financial holding company's financial control—capital control and financial relationship control. Chapter 4 deals with financial holding company's capital control goal and major control activities. Based on the capital control activities such as capital adequacy and return, capital raising and surplus, capital operations, the content, methodology and techniques of capital control for financial holding companies are analyzed. Stress is placed on how to set up a risk-profitability-based capital control mechanism by using the internal relations and functions of economic capital under the regulated market environment for financial holding companies. Chapter 5 elaborates on another key point in the financial holding parents'financial control mechanism—financial relations control.To maintain a harmonious financial relationship between different levels and arrive at the financial control goal, two other measures should also be adopted: the parents should be committed to the establishment of a financial governance system and a sound financial culture.Part 4 comprises of chapter 6 which proceeds to analyze the relevant content based banking holding parents and elaborate on how a risk-profitability capital control mechanism.The main innovations of this thesis are as below.1.A preliminary combined financial control model is proposed which characterizes a combination, i.e. financial control = 1+2+3+4, where 1 means one control goal;2 means two control elements: financial capital control and financial relations control;3 means three measures: by means of value, executive and rules;4means four principles: centralization, risk-benefit balance, end-to-end control and dynamic control.2.Through systematic and structured analysis, the financial control structure for financial holding companies is studied, and the structures of and relations among the capital control subsystem, financial relationship subsystem, financial information subsystem and financial control methodology subsystem are established.3.The study suggests that the parent financial holding company plays the key role of macro-controller in the group.,as the controller, should exercise financial control on its subsidiaries and the group by establishing capital control and financial relations control system.4.In paper I take a concept of financial relationship , establishment of the financial control mechanism with financial governance system and financial culture.5.I get a new idea in the paper. Stress is placed on how to set up a risk-profitability-based capital control mechanism by using the internal relations and functions of economic capital risk-profitability capital control mechanism.6.The financial control of financial holding company is a all process control.7.There is a great progress with the theory of Financial control mechanism in the study, where the other analysis way is used .