Report On Commercial Bank Financial Products Survey

Shadow banking system, which was first proposed by McCulley in2007, developed rapidly because spiral development of financial innovation and supervision caused by the inconsistency between monetary policy and financial regulatory framework, as well as over demand of financial markets, investors, especially institutional investors for security assets in the United States and Europe. But the shadow banking system was greatly concerned because it led to the subprime crisis in2007as well as the most serious global financial crisis since the Great Depression.I believe that although classic shadow banking system supported by the asset securitization doesn’t exist in China, there is a unique Chinese one because of interest rate controls and credit control, which is " entity or quasi-entity engaged in financial intermediation activities, with similar functions of traditional commercial banks, but unaffected by Basel Ⅲ or with same regulatory level. It consists of wealth management products (WMP), quasi-credit products issued by non-bank financial institutions and usury private financial system. The shadow banking system develops rapidly in China and its size is roughly about20trillion yuan now. However a risk of exposure in the government to provide implicit guarantee, disorders in financial markets price system, microscopic operational risk, endogenous vulnerability and lack of external supervision are the five main problems of the shadow banking system in China.WMP is the main study object of this report. Chinese WMPs has gone through its infancy and the high-speed development period, and now has reached the scale of8or9trillion yuan, which’s far exceeding the sum of securities investment funds, brokerage collection product and trust products. Thus it has become one of the most important wealth management tools. On one hand, the commercial bank financial products is a manifestation of financial innovation; but on the other hand, risk control omissions of the Chinese commercial banks financial products are treated as the greatest risk by some scholars in China.I believe that Chinese commercial banks financial products belong to shadow banking system, but it has certain rationality and belongs to the category of financial innovation, which could promote the transformation of commercial banks and the marketization of interest rates.In2012, an event of default of financial products of Huaxia Bank is the first case involving shadow banking financial products. I analyze the accountability, the causes and influences on the bank, industry, and market and I think the final solution of this default has positive significance, which may become a landmark event in the history of China’s financial supervision.At the end of this report, I put forward six policy recommendations for the shadow banking system, especially the financial products and the business of commercial banks as follows:improve the legal system, establish optimal systemic risk-based capital requirements, accelerate the marketization of interest rates, put the shadow banks under regulation, strengthen information disclosure and promote the reform of financial institutions.