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The Inspirations of Sub-prime Mortgage Crisis to Mortgage Business in Chinese Commercial Bank

Author: WangXiaoYu
Tutor: DingLi
School: Southwestern University of Finance and Economics
Course: Finance
Keywords: Sub-prime mortgage crisis Asset securitization Personal credit information system Financial supervision
CLC: F832.4
Type: Master's thesis
Year: 2009
Downloads: 251
Quote: 0
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Abstract

1. Topic BackgroundSince the April of 2007, the sub-prime mortgage crisis in United States affected the whole country, whose speed beyond many people’s expectation. In a short time, the international financial industries, real estate industry has changed a lot, and a number of governments were forced to adjust their fiscal policy and monetary policy in order to fix the crisis. As the time going, the impact of the crisis spread to all worldwide areas including both economy and daily life, sub-prime mortgage crisis in the real estate industry eventually led to a global economical crisis. The commercial banks, investment banks and rating agencies played an important role in adding fuel to the flames in the crisis, so when the crisis began to happen, financial institutions have also suffered severe loss. The analysis on the crisis inspired mortgage business to the Chinese commercial bank. The economic characteristics in China have both similarities and differences to the United States. This article means to analyze the crisis rationally, than find out practical risk management methods to mortgage business in commercial bank.At present, there are hundreds of analysis passages in abroad, mainly covered the reasons and effects of the crisis. The domestic analysis of the crisis on the whole, mainly aimed at the following categories: The first type explored the reasons of the crisis, the main conclusion of the study is that the direct cause of the crisis was downturn in the U.S. real-estate market and rising interest rates, rooted in relax monetary policy since 2000 of the Federal Reserve which aimed at stimulating the economy, the deep-seated reasons are too lenient lending standards, the irrational asset securitization and the improper credit rating. In addition, the lack of government supervision is also another important cause. The second type revealed important implications, the main conclusion of the study is the United States residential mortgage companies, investment banks and hedge funds went to bankruptcy. Then the crisis spread to whole world affecting global financial market. The third category studied the inspiration of the crisis to China. Many studies have different opinions to each other. Some experts believe that the U.S. mortgage market and economic environment has a huge difference between China, so China will not occur crisis in the real estate market; other scholars believe that the crisis in the mortgage market has already sounded alarm, Chinese commercial bank should draw lessons and fully aware mortgage loans hidden risk of this so-called "quality assets", and proposed risk management measures in the general direction.To sum up, there’s a detailed analysis of the crisis itself, and proposals have also been made for Chinese commercial banks on how to manage the risk of mortgage, but people seldom study the possibility of crisis occurring, as well as the specific measures against possible risk. As a result, on the basis of considering Chinese financial market development, to study risk strategies in the mortgage business, and learn from international experience to strengthen market risk management, will have far-reaching significance.2. Basic logical organization of this paperAnalysis of this paper began with the reasons and the impacts of sub-prime mortgage crisis, through studying the Chinese real estate finance issues, consider the quality of housing mortgage loans to commercial banks in order to explore and identify effective risk management measures.This article first illustrated the definition of the“sub-prime mortgage”, and described the causes and consequences of sub-prime mortgage crisis, and recalled the situation and development of the crisis happening. Then on the basis of China’s financial market development condition as well as experiences and lessons in the US, this article studied risk measures to housing mortgage business for Chinese commercial bank.The first part of the paper overviewed causes and impacts on the crisis, included governments strategy to deal with the problem. The second part indicated the reality of Chinese commercial bank’s housing mortgage loan business, studied the macro-policy environment, financial environment and cultural environment of domestic real estate market, and also studied the development of commercial bank loans. The third part of the paper suggested inspirations from the crisis, which including prudently controlling the process of assets securitization, to strengthen the investigation of personal credit, correctly distinguish the purpose of the housing loans, enhancing the supervision both internal and external, and analyzing and making anticipation on macro-economic situation.3. Major points and conclusionsBy combing the above content and research, the article made the following observations: First, domestic commercial banks should be prudent to carry out mortgage business, strengthen internal risk control mechanism, to avoid issuing improper housing loans when the real estate overheating; government supervision should be strengthened to improve examination policies. Second, when issuing housing loan, The commercial banks should pay attention to distinguish the purpose of consume, whether he demand is for personal living or for investment; Third, making full use of the People’s Bank of China Personal credit information system, so that strengthen the inter-bank communication of credit information. Finally, commercial banks have to analyze and forecast the country’s macro-economic policies in advance, in order to minimize the possibility of the risk occurrence, and enhance its ability to resist risks.

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CLC: > Economic > Fiscal, monetary > Finance, banking > China's financial,banking > Credit
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