Research On Countermeasure For Moral Hazard In Commercial Banks Of China

With the continuously improvement of the openness of China’s financial market, and acceleration of the pace of financial innovation, commercial banks are facing increasing financial risks, from which the problems are getting more and more people’s attention. There is still a large gap between China’s risk management level and other countries’. And it is really an urgent problem for the commercial banks to improve risk management standards, to resolve and to prevent and control the financial risks as soon as possible.In China’s commercial banks, there are designation flaws on internal staff performance appraisal mechanism and staff members’promotion is linked to performance. The banks’ risk management philosophy still lags behind and the subsequent punitive accountability system is not perfect. All of these made the current China’s commercial banks’ moral hazard become increasingly prominent. From the point of international scope, the moral hazard in financial sectors is related to financial risks, such as the collapse of Barings Bank, the "subprime crisis" and so on. Therefore, to focus on moral hazard studies is significant not only to reducing the risk of the banking sector, but also to effectively regulating the finance.Based on the analysis of the previous literature and the combined methods of quantitative analysis and qualitative diagnosis, this article elaborates the manifestations of moral hazard, causes and risk measurement of China’s commercial banks. Specific work is as follows:Firstly, it defines the connotation and classification of moral risk in commercial banks, and elaborates the possibility of the existence of moral risk in commercial banks from the point of view of the principal-agent theory and incomplete contract theory; Secondly, summarized the concrete manifestations and adverse effects of moral hazard in China’s commercial banks, and found that the existence of moral hazard enlarged the total risk of the banking sector, which is a dangerous and urgent problems; thirdly, with application of principal-agent theory, the article analyzes the formation reasons of moral hazard, indicates the source of its existence, and interprets particularity of our Commercial Bank’s moral hazard; Fourthly, By using the method of quantitative analysis, and from the quantitative point of view, the article further studies that the existence of moral hazard will bring the bank much huge losses on these three cases,"clear to close only part of the loan maturity","loan extension","loan-new-old ",; Finally, on the status of commercial banks, the article proposes specific strategies to reduce moral hazard risk for China’s commercial banks.The main innovation of this paper is to take into account the special nature of our economic system, and discusses the possibility of moral hazard in our generation and the specific performance in commercial banks; while based upon hidden action of the bank managers, the paper created a quantitative model of moral hazard’s root in Commercial Banks, and quantitatively analyzes one of the causes of moral hazard.As most of the domestic financial and banking operations relevant data are commercial secrets, this theoretical model can not be tested through empirical research, which makes this paper inadequate and deficient.