Study On Our Country's Early-warning Mechanism Of Financial Risk

In the history of world economy financial crisis is just like Pandora's box that cannot be closed when opened since the Industrialization. When the "tulip bubbles" appeared in Holland followed the Asia financial crisis flooded in the world and the sub-loan crisis came out, financial crisis is more than a "time bomb" which rises with the economic circle and causes marvelous disastrous results. Financial crisis always result in depreciation of a country's currency, decrease of capital value, bankruptcy of lots of enterprises, general rise of price and increase of layoff rate. It undermines people's life and baffles economic jack-up. Economy goes to pot and decays. Pessimistic anticipations which caused by the financial crisis even triggers social and political turbulence. Financial crisis firmly affected the world economic academic field when impact has been brought out to the world countries. If financial crisis is treated as fire, financial risk is treated as hidden troubles then the early-warning mechanism is more than a fire controlling system. The incorporation of world economy and globalization of finance made the fire fighting wall disappeared. And this is like adding fuel to the fire in helping the spread of financial risk. Therefore, to build early-warning mechanism of financial risk and to spy the level of its accumulation is necessary and urgent.Early-warning mechanism of financial risk is a decision-making support system. It takes financial activities and process as object and monitors the process, issues cautions in using methods and early-warning technology, indicators system and models. In the existent reference about warning financial risk, warning financial risk concluded two aspects: macro aspect and micro aspect. Method about warning financial risk can be divided into three styles: prosperity index, scoring on indicators and model. Prosperity index which often integrates many economic factors is as a (or a group of) prosperity indicator(s). It is a sigh of dynamic economic trend; method of scoring on indicators gives comparatively full review on the financial security condition by filtering indexes, setting up indexes system and scoring on indexes. Methods of model, which is based on statistics, forecast the probability of happening of financial crisis by models which integrated factors connected to the financial crisis. Each of the three styles has its advantages and disadvantages.This research adopted combined standard analysis and demonstrative analysis. Among the theoretic analysis of early-warning of financial crisis, we defined the definition of financial risk, discussed the types, causes, spreading mechanism and its new characteristics of financial risk, also we discussed the meaning and performance of frangibility of financial risk. Among the discussion of designing early-warning mechanism of financial risk we probed onto the elements of mechanism, the normal process of function of mechanism and How to choose the methods. We formulated elements of dominating methods of early-warning of risk and simply reviewed those methods, then proposed the principles in choosing methods, explained how to make and filter the indexes of early-warning mechanism of financial risk, illustrated how to ensure and modify the critical value. This research has chose indicators of our country's macro economy and formulated an early-warning mechanism by methods of scoring on indicators. Then we collected economic historical data of our country from 1998 to 2007 and analyzed the integrated condition of macro financial risk. By presenting the result of analysis, we found that early-warning mechanism can reveal the integrated condition of financial security completely and in truth. Also it could reveal the risk structure of sub-system and process of variety. The demonstrative analysis has fully succeeded.This research, which based on theoretical and demonstrative analysis and combined the reality that China is facing the sub-loan crisis, pointed out that early-warning mechanism of our country is facing problems: Current early-warning mechanism has flaws which come from indicator system and validity of models. How to recognize the financial risk which will be passed more reconditely? At the end of this paper we proposed several directions in which we could move on improving early-warning mechanism of financial risk.