A Comparison And Reference To The Banking Risk Prevention Among China Japan And South Korea

Banking plays a vital role in the economical development. If we regard finance as the core of modern economy, the bank should be its heart. At the end of 1990s, financial crisis broke out. Asian banking has been impacted seriously. This has highlighted the Asian finance system's vulnerability. Therefore, the Asian countries have all made a profound Reflection. In order to avoid making same mistakes again, Asian banking sector has carried out a series of risk prevention means. I believe that these measures may be summarized as direct and indirect ways. The direct way is to strengthen the banking supervising by legislation and to implement the supervision by one or many organizations. The indirect way is to enhance the resistance risk ability of banking by strengthen its competitive power. Therefore, Asian Banking has carried on a series of reform to process its Non-Performing Loans (NPLs). At the same time, Asian Banking has stepped onto an opening path to encourage the entering of foreign capital and the internationalization of its host banking.For the Countries at different stages of development, the impact to face and the problems to solve in the financial crisis are also different. The author selects Chinese, Japanese, and South Korean banking as the main objects to study its risk prevention. These three countries both have general characters and their own representation. Japan is a veteran capitalist power; simultaneously it is the only developed country in Asia. Known as a new industrialized country and one of the"Four little dragons in Asia", South Korea may be regarded as a representative of countries which are transiting from developing to developed. China is the biggest developing country in the world, and will be at the initial stage of socialism for a long time. At the same time, the three countries are also located in Northeast Asia with a similar cultural background. The intervention of goverments in banking sector is their main common characteristic. Therefore, making a comparison of their risk prevention means may provide a certain reference for the Chinese banking development.The paper divides into four parts. The former part introduces the relative theories of banking risk prevention. The latter three parts have made a series of comparisons among Chinese, Japanese, and South Korean banking risk prevention means from the supervising, the organizational reform and the opening up views separately. The paper also points out how China should make its banking system more effective by profitting from Japanese and South Korean experience.The first part defines what banking risk is. It also expounds the relationship between the banking risk and financial crisis and reviews the theory of banking risk. As a kind of dynamic risks, banking risk has the characteristics of uncertainty, objectivity, measurable and potential. In the meanwhile, it also has a very great social proliferation and a wide economical penetration. Banking risk could cause a serious crisis of finance, economic, society and even of politics. Since 20th century, banking risk theory has developed greatly with the growing of people's knowledge on the risk theory. Generally speaking, there are"Financial instability hypothesis"proposed by American economist Hyman P. Minsky and"Financial panic theory"proposed by Professor Douglas W. Diamond from Chicago University and Professor Philip H. Dybvig from Washington University. In addition, there were also some economist trying to explain banking crisis by the"Moral hazard theory"and gave out solutions.The second part emphatically discusses the specific measures to the banking risk of China, Japan and South Korea, analyzes the relationship between the Banking supervision and Risk prevention and compares the Banking supervision means among China, Japan and South Korea. I believe that mixing supervision to the financial sector is a trend of the times. As early as in 1998, Japan had found a financial Supervisory Office as Unified supervision to the financial sector. South Korea found its Financial Supervisory Commission in 1998. In the next year, Financial Supervisory Service was set up as the Subordinate of Financial Supervisory Commission in the charge of supervision management to the entire financial sector. China has 3 separated supervisory departments known as China Banking Regulatory Commission, China Securities Regulatory Commission and China Insurance Regulatory Commission. With a gradual opening up of banking business, China should learn from Japanese and South Korean experiences, mix the financial supervisory system and improve their efficiency.The third part mainly discusses the organizational reform and the Non-Performing Loans (NPLs) processing in the banking of China, Japan and South Korea. Generally, it is believed that, the reasons why China, Japan, and South Korea have so much Non-Performing Loans (NPLs) are quite different. The NPLs of China is caused by the reform and opening up policy and the historical reasons. For South Korea, the NPLs is influenced by the financial crisis in Asia. Else for Japanese NPLs, it is because of the bubble bursting of the real estate and stock markets. Behind these specific reasons, there is a common in-depth reason for the NPLs'production in the banking of China, Japan and South Korea——the special relation between government and banking under a strong government order arrangement. Therefore, the government of China, Japan, and South Korea all make efforts to process their NPLs from organizational reform. Their main methods include establishing finance managing company, carrying on the annexation or the bankrupt reorganization, injecting the State capital, launching banking nationalization project and so on. The reasons of NPLs'production in China, Japan, and South Korea Banking have something in common. Say, they are all related with the government intervening. China may profit from the related experience of Japan and South Korea. The essence of the morals risk in Chinese banking is the seriously inconsistent information, benefit and responsibility between the owner and the superintendent under the state-owned system. Therefore, to reduce the moral risk, we have to solve this problem and effectively establish an incentive and restraint system to make the benefit and the responsibility of the superintendent and the owner consistent.The fourth part has analyzed the relationship between banking opening up and the risk prevention. As a double-edged sword, banking opening up both can effectively promote its competitive power, strengthen its ability of risk resistance and simultaneously bring a certain risk. Regarding the development phase of different countries, the risk of banking opening up is also inconsistent. Even under a similar open policy, a different condition of national size, economy and financial power will cause the banking receiving entirely different influences. Japan is a developed country. It has a strong economic, a sound legal environment and a good management system. As a main exporter of banking, Japan has less foreign capital in the host banking. It mainly faces the risk of capital exporting. In spite of being regarded as a newly industrialized country, South Korean property scale is very small and its host banking competitive power is weak. In the process of opening up to the foreign capital, South Korea Banking acted as a character of being reorganized and merging. It mainly faces the risk of introducing foreign capital. The situation in China is different from both Japan and South Korea. Although China is a developing country with a not so competitive banking sector, it has a fourth economical scale and first economic growth rate in the world. We may foresee that Chinese banking had a very big potential. After promoting the banking competitive power by introducing foreign capital, the banking of China will expand outward massively. In fact, some Chinese large-scale state-owned commercial banks have already launched positive attempts of internationalization. In a short-term, Chinese banking faces the risk of introducing foreign capital; while for a long time, Chinese banking will also face the risk of international expanding.