Research On The Problems And Suggestions Of Banking Regulation In China

The financial market has been developing rapidly with the advancement ofglobal economic integration as well as science and technology. The competition infinancial sector was also changing with endless new financial products. Numerousstudies in this field have indicated that stability of the banking system played a veryimportant role in the growth of economy and the stabilization of society. Due to newdevelopments in international finance, national regulatory authorities are undergoingtremendous changes in regulatory philosophy, means of supervision, regulatoryobjectives and regulatory frameworks. Additionally, international banking regulatoryareas are showing some new trends.China’s banking industry has made tremendous contributions in many aspects,such as deepening reform, strengthening supervision, improving services andsupporting national economic development since the reform and opening up.However, problems have accumulated and been exposed during the rapiddevelopment of the banking sector for various reasons. The China BankingRegulatory Commission was established in2003. Since then, our country graduallyestablished a banking supervision framework, with China Banking RegulatoryCommission constituting its main part and the People’s Bank, together with otherdepartments participating. After a decade of development, banking supervision hasmade considerable progress, proving that China’s banking regulatory systemframework is effective. But compared to international standards and industryrequirements, China’s banking supervision level is still far behind. This regulatorysystem framework is facing more and more challenges in the developing trend ofmixing banking with operation, as well as more frequent international financial crises.This article puts forward the corresponding strategies for the improvement anddevelopment of China’s banking regulatory system along the vein of asking questions,analyzing situations and solving problems. This paper analyzes the historical change, development status quo andframework and system of the China banking regulatory in detail. After ten years ofreform and development, the carrying indicators of China’s commercial banks havemade considerable progress， including the bank’s overall size, asset quality,profitability, and ability to resist risk. Did these achievements made in the bankingsector mean that China’s banking regulator was a huge success? This paper analyzedthe sources of the performance of our country’s commercial banks, then drew theconclusion that the achievements of China’s commercial banks mainly came from thecombined effect of exogenous variables such as China’s rapid economic growth, looseand comfortable monetary policy, bigger differences between deposit and loaninterest rates, and other supporting policies.This paper analyzed the main problems of commercial banking supervisionunder the new situation. First, the development of the shadow banking system isgrowing in recent years. It gradually attracted widespread attention at home andabroad of the financial sector. Although our shadow banking differs from Westerncountries, it also may lead to potential risks. This paper analyzes the shadow bankingsystem and its fragility. Through the empirical analysis of China’s shadow bakingsystem’s risk, this paper pointed out that a systemic crisis caused by the shadowbanking system in China was unlikely to happen because its development relativelylate and its size was relatively small. But we shouldn’t relax the regulation. Second,free convertibility of capital accounts has already become a strategic task indeepening reform and opening up as the international capital movements grew.China’s capital account liberalization is also accelerating. Through empirical researchon foreign capital account liberalization and the banking crisis, we concluded thatthere was no significant association between capital account and the incidence ofbanking crisis. This conclusion further illustrated the necessity of the opening ofChina’s capital account. Third, this paper combed the practice of our country’s bankcapital regulatory and analyzed the effectiveness of our commercial bankingregulators. From the micro perspective, China’s bank capital regulation is effectiveand it complies with the relevant standards and requirements of the Basel Committee,while in some aspects it also needs to be improved. From the macro perspective, there were many problems in the effectiveness of capital regulation, and its overall effect isnot as satisfactory as from the micro level. Forth, this article also explained themeaning of systemic risk of China’s commercial banks, studied the cause of systemicrisk with empirical analysis methods based on the Logit binary discrete choice model,revealed some macroeconomic variables which could cause Systemic risk, andpointed out the systemic risks that China’s banking system was facing. The risksmainly include slower economy growth, high local government debt, propertybubbles, the development of internet and so on. These may impact the bankingsystem. And the regulatory authorities should be closely regulated. Fifth, facing thesystemic risks, this paper cited the advantages and disadvantages of China’sMacro-prudential supervision and provided a solution to resolve the bank’s systemicrisk.The subprime crisis, which occurred in2007, has changed the global financiallandscape and caused huge losses to the global banking system. In this circumstance,the western developed countries have regulatory reform. Through combing andanalyses the regulatory reform of the nations and international organizations, such asU.S., U.K. and E.U, we know the tide and trend of international regulatory reforms.And this provides a reference for China’s banking supervision system reform. TheBasel Ⅲ was formally launched in order to prevent the recurrence of a similar crisis.This paper interpreted "Basel Ⅲ" and analyzed the possible impact that the accords’Promulgation might bring to banking regulation in China.Lastly, this paper put forward the countermeasures and suggestions of perfectingthe banking supervision system in China. With analysis of the current situation andexisting problems of China’s banking supervision, on the basis of learning fromwestern developed countries’ reforming of banking supervision, combined withChina’s actual conditions, this paper puts forward the countermeasures andsuggestions of perfecting our country’s banking supervision system. Meanwhile, thispaper proposed targeted and constructive policy recommendations on how to preventvarious systemic risk, how to formulate banking capital regulation framework thatcomply in China, how to regulate the development of the shadow banking system,how to improve China’s macro-prudential supervision, how to build a suitable foundation environment for China’s capital account liberalization, etc. Thus, thispaper provided a useful reference in preventing the spread of financial risks in ourbanking system.