Theory And Its System Of Banking Supervision Arrangements: The Validity And Empirical Test

Some inherent factors such as externality, frangibility and incomplete information that bank institutions have make the whole banking facing great risks. Banking supervision as a government intervention to the financial market operation for its unsuitable or inefficient, is a system arrangement which can remedy market failures, maintain financial system keeping solidity and efficiency, improve efficiency of resource allocation, and keep public interest from invasion. Effective bank supervision as public goods can not be fully provided by the market, which combined with effective macroeconomic policies constitute the key element of national financial stability.With the development of modern economic, in practice, government intervention has extended to all aspects of the economy. Because of the existence of the market failure, information asymmetry, externality and market power, price can not reach Pareto Optimality by itself, so the cognition of government intervention to market economic activities has been widely recognized. On the basis of this, the discussion about the focus of this problem turn to fasten on the scope, methods, effectiveness and cost control of the supervision.Banking supervisory official agencies of most countries have three functions: prudential supervision, deposit insurance and lender of last resort, which constitute the whole process of monitoring from beforehand to afterward. But we found that, as the most important functions of the official banking supervision, the effectiveness of these three functions has many incomplete aspects. The effectiveness of prudential supervision function depends on the contrast of the capital base ratio between the supervision required and the market determined, and the banks will decide the capital base ratio separated in the framework of the market and supervision. Deposit insurance and lender of last resort functions are all the components of the financial security net which constructed by government, its effectiveness depends on the supervisory costs, social costs and moral hazard which the supervisors will pay to, the reduction of moral...