Study On The Financial Risk Prevention Of China's Village And Town Banks

Rural finance is the core of modern economy. The establishment and development of village and town banks addresses such problems as low coverage rate of financial network, inadequate financial supply, as well as insufficient competition. It also improves and strengthens the rural financial services, and facilitates the development of agriculture, rural areas and farmers. However, as village and town bank is a kind of emerging rural financial institution, its operation inevitably faces many financial risks. In order to avoid repeating the same fate of "Rural Cooperative Fund Associations" being abolished, to safeguard the legal rights of depositors, and to maintain sustainable and healthy development, the current research and exploration on how to effectively prevent financial risks of the village and town banks is of great theoretical and practical significance.This thesis uses Marx's bank capital and financial risks theory as guidance; draws on western economics financial risk management theory, "the Basel II" and the rational factors of the financial risk management framework; and employs such methods as combined theoretic and empirical analysis, typical and comparative analysis, as well as qualitative and quantitative analysis methods. Firstly, the thesis clarifies the connotation and characteristics of village and town banks, provides a summary of the effectiveness of pilot village and town banks, describes systematically the financial risks that village and town banks face in operation, and at the same time specifies the specific characteristics of those financial risks. Secondly, the thesis analyzes the causes of systemic and non-systemic risks of village and town banks. Finally, on the basis of the lessons of "Rural Cooperation Fund Associations", Bangladesh village bank's successful experience, combined with current reality, the thesis provides some suggestions to prevent financial risks effectively. The measures to control the non-systemic risks of village and town banks include:optimization of capital structure, improvement of capital adequacy, establishment and perfection of banks'operating and managing mechanism, perfection of the inner control system of financial risks, strengthening talents cultivation and financial infrastructure construction, reinforcing external supervision on financial risks, perfecting market access and exit system, accelerating the establishment of deposit and insurance system. And the measures to reduce the systemic risks of village and town banks include:improving the rural social credit system, perfecting rural financial policies as well as laws and regulations, building a moderately competitive rural financial system, and improving economic compensation mechanism of agricultural risks.