International Capital Flows And The Stability Of The Banking System

Financial activity has become an indispensable part of global economy and the stability of finance has played a more and more essential role in driving the global economy to grow smoothly and efficiently. Modern financial system consists of bank, security, trust and insurance.Since 1990s, with the financial liberalization and the economic integration, international capital flows have continuously accelerated in speed,increasingly enlarged in scale and have become the most active force in current economy world. They have influenced the worldwide financial resources allocation and changed the economic operation efficiency of each country, all of which have intensified the volatility and uncertainty of the supply-and demand relationship and price signals of all kinds of financial transactions.The fast expansion of international capital flows undoubtedly brings the benefits of efficient allocation of resources in the worldwide. However, it also brings negative impacts, especially for developing countries. In an open economy, international capital flows strengthen the power to destroy the administrative control, aggravate the formulation and contagion of the risk among countries and induce more instable factors to bank system. It has proved that almost all the countries which had experienced currency or bank crisis had experienced massive capital inflows and outflows.Relying on the stringent capital controls, China had survived the 1997 Asia Financial Crisis. However, because of the burden left over by history, the bank industry in China, especially the national banks, still have serious problems in operation and management. In the long run,...