Study On The Financial Risk Transmission Mechanism Under The Opening Economic Condition

American Sub-prime Mortgage Crisis evolved as the world economic crisis through the way that lots of sub-prime mortgage institutions became bankrupt, which forced many investment funds to close down and cause severe price change in stock market. The credit risk became to a global financial crisis.The dissertation tends to deeply and systematically analyze the American Sub-prime Mortgage Crisis. Firstly, study the causes of the sub-prime crisis through demonstrating the operation of the Sub-prime Mortgage security. Secondly, the dissertation derives the crisis transmission process from the capital market, credit market, economic entity, and international financial market. Thirdly, on the basis of the transmission mechanism, the influence of the crisis to the U.S. and world economy is analyzed further. Forth, the dissertation focuses on the effect of the crisis on the Chinese economy and studies from all aspects, export trade, financial institution, home and abroad investment, domestic consumption, employment macro-economy and currency exchange risk. Last, from reflecting the lessons drawn from the Sub-prime Mortgage Crisis, the dissertation puts up with suggestions on the opening-up of the Chinese financial industry and the development of financial derivatives in Chinese financial market.First of all, it is important to pay attention to the proper degree of the opening-up in Chinese financial market. On the one hand, the idea of the financial sovereignty should be in the first place in the process of importing foreign capital. China based financial corporation should dominate the domestic financial market where the state-owned financial institution takes the leadership. On the other hand, the international market occupation rate should be emphasized in the process of investing abroad. There are two issues. One is that the Chinese capital market dose not fully open up considering the developing competition capacity so that the outflow of capital in china subjects to some administration control with the purpose to create a favorable circumstances for the Chinese economy growth. The other is that with the increase of overseas capital invested by Chinese bank, the capability of Chinese banking to exploit international market is getting strong. The financial crisis can be regarded as the opportunity of china to invest to global market, especially U.S. and E.U. ones. Chinese financial industry should hold the policy of reform and opening-up and combine the own advantage with the need of business development to speed up to exploit the overseas market.Furthermore, financial innovation should develop properly. The U.S. financial turmoil reminds us of re-considering the role of financial innovation. The extreme financial innovation which derails the real need of economic entity, not the financial innovation itself, is the root of the crisis. The effect of financial innovation on the development of Chinese financial industry should be cognized correctly. We can’t misunderstand the lesson from U.S. financial crisis, give up or slow down financial innovation. As to China, there is need to develop financial innovation for there are so few financial products that can’t satisfy the requirement of Chinese financial growth. On the contrary, Chinese financial industry should expand financial innovation to provide new products and services which fit the social needs under the condition of efficient risk appraisal and management. It is certain to be prudent to make innovation of high risk financial products. In the meanwhile, financial supervision and regulation should catch up with the progress of innovation so as to supervise applicably and to avoid the lagging, vacancy and inefficiency of financial supervision and regulation.Third, there is balance between efficiency and stability in financial system. It is a key to handle the relationship of free competition and macroeconomic management. Market adjustment is a sufficient method with good effects on emancipating productive forces, driving initiative and improving resource allocation in whole society. However, as the core of the modern economy, financial industry should compete at some extent that authority implements macroeconomic management. The macro-control and the supervision should adapt to the market principle and discipline and put into force using market methods. The simple administrative means is definitely not the best way to adjust and manage.Last but not least, Chinese financial industry should be based on the principle of intermediary business with the subsidiary of self-operated business. The financial intermediary business indicates that financial institutions as agents provide merge, finance and asset management services to real economic entities. While the self-operated business means the operation mode of employing the self-own capital fund. Under self-operation, when the market became adverse and capital fund is not sufficient, financial institution inevitably depends on leverage operation which makes the institution more vulnerable to risk. The essence of financial industry is to provide financial service to meet real economic entities’need, which requires financial industry to mainly involve in intermediary industry. If the whole industry is lost in the self-operated business, financial institutions compete with each other to chase the profit and give up the essence and root of financial industry, the fictitious economy would excessively react, as a consequence of leading to economic bubble, other problems and even financial crisis. At present the mixed operation in financial industry is on the first stage, the risk appraisal and management proficiency needs to improve. Therefore, it is important to enforce the separation mechanism among banking, security and insurance. With the development of mixed operation in Chinese financial industry, financial institutions, especially ones with small capital fund should be limited by the ratio of leverage. Nowadays, the intermediary business should be the dominant service the Chinese financial agents involve in, while the self-operated business should take into control.