A Study On The Changes In The Reformation Of American Financial Regulatory Structure After Subprime Mortgage Crisis

Since the 1970s, the financial liberalization has pushed forward global financial integration and financial innovation. Traditional boundary of financial institution function gradually blurs. Financial structure and operational mechanism become increasingly complex, which has made a strong impact on the decentralized organizational structure of financial regulation. Therefore, financial regulatory reform is imperative in major developed countries, which improves the regulation efficiency and maintains local financial prosperity. In China, with the financial development and increasing demands, banks, insurance and security companies begin to collaborate and interact. Financial products mushroom in the Chinese market. The old mode of trade is replaced by the integrated trade characterized by overlapping business operation. Besides, the financial holding companies develop fast. According to WTO related protocols and our promise of entering WTO, our government opens up the financial circles gradually. Accompanying the open-up policy, foreign-capital financial institutions, especially strong department store finance, swarm in. This leads to a more severe competition. Meanwhile, the old Chinese separated financial regulatory system can't apply itself to integrated business and some risky financial products or institutions. The supervision system calls for improvement and reform. The American subprime mortgage crisis in 2007 resulted in a reform in American financial regulatory system. The outdated separated financial regulatory system developed into objective-based regulatory system. The American financial reform may provoke thoughts in China.This paper starts from a general inspection of financial supervision and an introduction to the theory of financial regulation and the criterion of choosing system. Moreover, it takes a glimpse at the history and main contents of organizational supervision theory, functional supervision theory and objective-based supervision theory. A rough analysis will be presented in accordance with the criterion of choosing system.The second part stresses on the main problems arising in the American financial regulatory system during the subprime mortgage crisis. One problem is regulatory arbitrage, which includes two aspects, overlapping supervision and vacuum supervision. They directly produced a cut-down in the regulation cost and a pursuit of extra interest by avoiding supervision. The above-mentioned aspects mean unpredictable risks for the whole financial system.The second problem lies in the procyclicality of capital regulation. In other words; the current financial regulation deteriorates the capital procyclicality and influences the credit and business cycles.What makes the situation worse is the possible risk hidden in the shadow banking system. Free from strict supervision, the shadow banking system is entitled with more flexibility. However, it suffers from three fatal demerits:high financial leverage, the misuse of long-term credit and the exemption of regulation, all of which resulted in the subprime mortgage crisis in America.The third part of the paper introduces the measures taken by American government in the reform of financial regulation system after the outbreak of the crisis. The part includes the The Blue-print for a Modernized Financial Regulatory Structure of Bush government and A New Foundation:Rebuilding Financial Supervision and Regulation of Obama government. Different as they are, the two reform proposals promote a permanent objective-based supervision system, which gives rise to a close contact between 3-level supervision organs united in the regulatory aims and structures. With the same regulatory criterion on the same financial products and risks, the efficiency of supervision is supposed to improve greatly.The last part begins with the historic development of financial supervision structure in our country. It analyzes the present situation and existing problems in Chinese financial supervision. The paper employs the relevant theories and international practice as a source of reference and takes into consideration the-characteristics of economic transition and the financial deepening in the initial stage. As for the short-term reform, the paper suggests organizing financial supervision and coordination committee, who can coordinate various supervision organs and carry out- supervision on financial cliques. As for the long-term reform, the paper suggests adopting the objective-based regulatory mode, so as to eliminate the low efficient supervision caused by overlapping supervision and vacuum supervision. The mode also puts forward political proposals to the structure of objective-based regulatory mode.