Researching On The State-owned Commercial Banks With Government Succor

1Based on the theories of bank fragility and problem bank externality, this thesis analyzes the general therories of government succor of problem banks, providing theoretical support for China's succor of state-owned commercial banks. It further puts forward the special causes of our government's bailout of state-owned commercial banks, and examines the Chinese government's relief measures and the effectiveness thereof. The bailout of financial institutions by the US government during the financial crisis is also carefully studied with their lessons discussed. In the latter part of this thesis, detailed suggestions for China's future policies of bailout of state-owned commercial banks are provided.Apart from preface, this thesis contains five parts, each developed as follows:Part One, Rationale of Government Bailout of Problem Banks. This part firstly analyzes the necessity of government bailout of problem banks from the perspective of bank fragility and problem bank externality. Then on the theoretical basis of government intervention incurred by market failure, the concept of government bailout is discussed, with the introduction of primary means of bailout of problem banks and their costs and revenue, which determines the right time of government bailout. At the end of this part, the principles of government bailout of problem banks are studied. This part serves to provide theoretical support for the study of the Chinese government's bailout of state-owned commercial banks.Part Two, Special Causes of the Chinese Government's bailout of State-owned Commercial Banks. This part covers the institutional transition of state-owned commercial banks, the role of state-owned commercial banks in China's economy and finance, the contribution of state-owned commercial banks to the economic development of our country, the system risks and credit risks confronting state-owned commercial banks, and other issues as well. Through discussion of these issues, special causes of the Chinese government's succor of state-owned commercial banks are proposed in this part. Part Three, Analysis of Means and Effects of Government succor of State-owned Commercial Banks. This part mainly reveals the Chinese government's bailout of state-owned commercial banks since their commercialization reform, including capital injection and disposal of non-performing assets. The positive effects and negetive effects of the two relief measures are also analyzed.Part Four, US Government's Bailout of Financial Institutions and the Lessons Thereof. This part studies the bailout of problem financial institutions by the US government during the financial crisis developed from the subprime mortgage crisis early at 2007. Lessons are also drawn from the US government's practices, including the adherence to the too-big-to-fail principle, the execution of the trade-off principle, the timely modification of bailout policies, the superiority of stock acquisition over other relief measures, and the significance of making targeted bailout at the right time.Part Five, Suggestions for Improvement of Government Bailout of State-owned Commercial Banks. On the basis of the previous analysis, corresponding improvements are proposed: 1. State-owned commercial banks should balance and coordinate their own functions and duties, deepen the reform, intensify the supervision, and prevent and limit risks; 2. The bailout mechanism of problem banks by the Chinese government should be reformed and improved in such ways as establishing the deposit insurance system, strengthening the subjects of government bailout, establishing and improving the succor mechanism of problem banks, and setting up the market-oriented disposal system of non-performing assets.Possible innovations in this research are:1. There is copious literature on the single topic of either risks of state-owned commercial banks or financial risks, and quite a number of researches on fiscal risks deal with risks of state-owned commercial banks. Yet such researches tend to be centered on either the financial field or the fiscal field. This research, in combination of the fiscal and financial issues with its focus on the government bailout of state-owned commercial banks, conveys a sense of innovation from the topic selection to the study object and research question.2. With a comprehensive discussion on the rationale of government bailout of problem banks, this thesis systematically answers such questions as why to grant government bailout to problem banks, how to relieve the physical problems, and how to evaluate the effectiveness of the bailout.3. This thesis conducts a systematic analysis over the contribution of state-owned commercial banks to China's economic development and their risk causes, and further proposes the four special causes of government bailout of state-owned commercial banks—the obligations of the government as the owner, the need for the government to repay the historical debts, the necessity to explicitize the tacit government warranty, and the call for financial restructuring.4. Though the Chinese government has exercised a succession of relief measures on state-owned commercial banks since 1998, most present researches deal with one single bailout policy only. This thesis, however, develops an all-round demonstration of the positive and negative effects of government bailout of state-owned commercial banks from the perspectives of both microeconomy and macroeconomy.5. Based on the analysis of the experience and limit of government bailout of state-owned commercial banks, this thesis draws a lesson from the US government's bailout of financial institutions and puts forward suggestions for improving China's government bailout of State-owned commercial banks: state-owned commercial banks are to prevent possible risks by balancing and coordinating their own functions and duties, deepening the reform and intensifying the supervision, while the government is to reform and perfect its bailout mechanism of problem banks in the face of existing risks by the way of establishing the deposit insurance system, strengthening the subjects of government bailout, establishing and improving the bailout mechanism of problem banks, and setting up the market-oriented disposal system of non-performing assets.Nevertheless, subject to my own narrow knowledge and limited research data at hand, this thesis does carry quite a few weaknesses as stated below:1.In the effect analysis of China's government bailout of state-owned commercial banks, it fails to distinguish the extent to which the government bailout and other forces respectively influence over the rising indexes of the overall assessment of state-owned commericial banks. Therefore the analysis of the positive effects of government bailout of state-owned commercial banks is in need of a more in-depth and complete demonstration, and this imperfection exerts certain impact over the proposal of the government bailout mechanism.2. In the discussion of innovation of government bailout mechanism of state-owned commercial banks, exit of state-owned capital is supposed to constitute a prime measure of marketization, yet the nationalization of financial institutions is proceeding in many countries during the US financial crisis. Therefore this research does not consider the issue of exit of state-owned capital, but lays particular stress on building a capital structure with clearly-established ownership as the prerequisite for the set-up of a market-oriented bailout mechanism.In brief, for this thesis on the government bailout of state-owned commercial banks, there is still room for carrying out a more penetrative research, and the proposal of the bailout mechanism and relevant measures still needs verification, perfection and enrichment. I sincerely hope to make further investigation into the government bailout of state-owned commercial banks in my future research with this study as a start.