The Theory Of Banking Executives Of Moral Risk And Regulation

For a long time, the illegal business behaviors of banking financial institutions happen from time to tome and the major and serious criminal cases exposed continually. The economic loss caused by illegal violation cases is bigger and bigger. It is very hard to prohibit phenomena of rule-breaking operations in internal staff. Long-term Internal and external collusion crime frequently happens. Many bank executives have been dismissed from their positions. The causes of high rates banking cases are internal, external, subjective, objective, surface and deep. From the external angle, Social credit environment is bad and the credit system is not perfect for our country is still in the economic transition period. From the angle of bank, the reasons of these cases are imperfect banking management system and poor internal control management. Therefore, bank risk prevention and control have direct and close relationship with banking executives’moral hazard prevention.Reason of moral risk formation is various, the situation is very complex. Asymmetrical information is the root of this issue. American financial crisis began in subprime mortgage crisis which Influenced America and the world financial industry. The nature of subprime mortgage crisis is Subprime leading securitization. China banking regulatory commission puts forward concepts of "supervising legal person, risk, internal control and increasing transparency" which was found in April,2003. Controlling risk is on the basis of strengthening banking institutions compliance regulation which represents the latest trends of international banking regulation. The advantages of it are to optimize the allocation of resources and increase the regulation efficiency. The procedure of analyzing moral risk can help financial supervision and regulation department to take more effective measures to establish perfect system, strengthen internal control and supervision and ensure stable operation and development. Moral hazard prevention will be the major part of financial regulation.This paper aims to build moral hazard game mode. From this mode, we find that asymmetric information is the root of moral hazard and less incentive salary mechanism is the drive force.The purpose of this paper is not for state-owned commercial banks to put forward a complete, systematic, comprehensive range of solutions but to remind the peculiarity of corporate governance for our Chinese commercial banks.This paper concludes on banking executives’moral hazard prevention and regulatory direction mainly from the following five aspects which includ:firstly, set up a sound corporate governance structure and management system; secondly, establish effective information transmission mechanism and improve the information disclosure supervision; thirdly, reform the structure of banking salary mechanism; fourth, establish and regulate professional manager market step by step; fifth, increase the enforcement of performing the duties; Last but not least,increase the culture of the binding.