Research On Identification Of Systemically Important Banks In China

U.S. subprime crisis broke out in2007, and then the fourth-largest U.S. investmentbank Lehman Brothers declared bankruptcy, but the loss caused by the crisis is notlimited to the United States, the global economic downturned. Financial institutionslosses in the financial crisis or even bankrupted, some of them are global systemicallyimportant financial institutions. Once these financial institutions fall into crisis, theirimpact on the entire financial system and the real economy is even more intense. This isbecause the systemically important financial institutions and other institutions have astrong correlation, it falls into crisis even collapses will have a huge impact throughoutthe financial system. The2008financial crisis proved this point.This paper studies the identification of systemically important banks from thesystemically importance. According to the systemically important bank’s definitiongiven by the Financial Stability Board, this paper analyzes the importance and necessityof identifying systemically important banks combined with the financial crisis in thebackground. The current academic research methods fall into two categories: indexmethod and model method. The model method uses some model which is reflecting theinter-bank transfer risks and based on financial data and market transaction data toassess systemically important banks. The index method combined business features, setthe number of banks from different angles to reflect the negative externalities index byindex value to the system and then recognize the systemically importance banks. Takinginto account China’s financial market is not perfect, obtaining the risk data of infectionto inter-bank is difficulty, so this paper select indicator method to assess thesystemically important banks.China Banking Regulation Committee proposed identify systemically importantbanks index system on the basis of the Basel Committee on April27,2011, andpublished a detailed assessment index system for global systemically important banks inJanuary2014.The system’s indicators is suitable for our country, and has four factors:the size, relevance, substitutability, and complexity. But it doesn’t propose specificevaluation indicators for domestic systemically important banks, on the right of eachindex are not clearly defined. Therefore, this paper according to the annual report of thefinancial accounts of the banking sector, gives the specific indicators, and uses average weighting method and entropy method to determine the weights of various types ofindicators, ranks the importance of our country’s system of banks. Ranking results of thetwo methods showed that the five state-owned commercial banks were far ahead, butChina Everbright Bank and China Merchants Bank ranking front in the entropy method,even exceeded the score of Bank of Communications. By comparison of the tworanking we see the urgency of establishing a scientific index system to assessesystemically important banks. CBRC proposed to strengthen the supervision onsystemically important banks, update their business systems, and improve the regulatoryframework. CBRC should request the systemically important banks to strengthen theirown risk awareness, increase their own ability to absorb losses, establish a loss-sharingmechanism when crisis appears to ensure these systemically important banks can beprocessed safely and quickly after the crisis, and to prevent systemic risk caused of itscollapse. CBRC should also require systemically important banks and non-systemicallyimportant banks disclosure the relevant data timely and accurately, in order tounderstand their operating conditions better and propose relevant measures and riskcontingency plans, thus Chinese banking industry will develop healthy and rapidly.