Research Of Legal Issues On Chinese Commercial Bank Insolvency

Commercial bank is one of the important participates in the economy of onecountry, so it is impossible to ignore its status and function. Meanwhile, it is equallyimportant to establish market exit mechanism and bank insolvency which can be usedto screen insolvent banks. Just as Michael Rogers claimed in ‘Airline TurbulenceSpreads across the Land’-------‘capitalism without bankruptcy is like Christianitywithout hell’. Someone may think it is a little overstated, but as for me, itdemonstrates the importance of insolvency in recent economy system visually-----similar to the hell in Bible, the existence of insolvency does not only symbolisepunishment, but also symbolises a kind of deterrent force which is a power towardkindness in Christianity but a function to pick up the better, to purify the market, andto stabilise the economy in capitalism. Unfortunately, in fact, it is the function thatChinese bank insolvency mechanism does not have. Nowadays, there is still no realcase about commercial bank insolvency in China. The implicit government guaranteehas adverse psychological effect on the citizens who believe that Chinese banks willnot go insolvency. Whereas this kind of credulity is not the biggest hazard and thebiggest one is the moral hazard hided in the Chinese commercial bank system.Without the deterrent from insolvency, commercial banks lose the basic pressure andwith the help from government, they lose the basic duty of diligence.Meanwhile, commercial banks insolvency is very different from the ordinarycompany insolvency. Due to the specialty of commercial banks, any bank insolvencymay make bad effect on depositors, creditors, bank system and even the entireeconomy inevitably. Therefore, one of my footholds of this paper is that treating commercial bank insolvency mechanism only as a force of deterrent is one side of theproblem, and the other side is to consider this mechanism as a recovery scheme whichcan be utilized to save insolvent banks in time by using the greatest degree ofregulation in real time. Just as Walter Bagehot said in A Description of the MoneyMarket-----‘a bank lives on credit. Till it is trusted it is nothing; and when it ceases tobe trusted it turns to nothing.’ The virtual goal of commercial bank insolvencymechanism is to strengthen the trust toward bank system-----the daily regulation,prepositional procedure of insolvency, liquidation and deposit insurance all help tobuild the trust toward banks, which means that people will not only deposit money ina bank when it is health, but also believe the function of bank insolvency mechanismwhen financial crisis happens, and this belief can help to maintain the stability ofeconomy.To large extend, Chinese people just establish their trust on the governmentimplicit guarantee, which is not only the failure of bank system in China, but also thefailure of Chinese bank insolvency scheme. It is the deviation of this system whichmakes it cannot function well. Therefore, by using the method of empirical researchand normative research, this paper bases on the analyses of legislations related torecent commercial bank insolvency in order to list the problems involved in thisinsolvency system. Meanwhile, with learning from the experiences of UK and US inbank insolvency, author tries to put forward relevant suggestions to complete the bankinsolvency system in our country.