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Research on Regulation of Financial Holding Company

Author: ZhangQingZuo
Tutor: FanXueJun
School: East China Normal University
Course: Finance
Keywords: Financial holding company(FHC) Mode of regulation Basel II
CLC: F832.1
Type: Master's thesis
Year: 2010
Downloads: 161
Quote: 2
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Abstract

From the〈Financial Service Modernization Act〉in 1999, the obstacle among the fields of securities, bank and insurance has been banished, which led to a reform of the mode of financial operation and which raised the competence of financial field in America. Then, the developed countries, named as Britain, Japan and Germany, followed America in a way that combine the situation of own countries with the reform, even to the extent that loosen the financial regulation. Financial groups start to merge local and overseas companies in order to realize the diversification and globalization.China doesn’t follow this trend because our financial market has not totally opened to the outside, and still execute the policy of Separate Operation. But in practice, China is eager to reform the financial field by mixed operation. Due to the laws, financial holding companies(FHC), as the primary mode of mixed operation, is the only way to it.Since the FHC relates to various financial field, even mixed with industrial capitals, and it has more than billions capital, once it has operation crisis which probably causes butterfly effect and domino effect. Thus, all the countries should regulate and legitimate the regulation system while they encourage FHC. Now, China’s law to the FHC is still empty and the method to regulation is out of date. The liquidity crisis of Guangda Group, the bankruptcy of GuangGuoTou and Delong Group have exposed the unhealthy of the regulation.The paper research the mode of regulation of FHC, the present situation of FHC’s development and the suggestion to the regulation, which aim to:(1) Mixed operation is a global tendency, the mighty bank and the FHC have well developed overseas, and so has the way to regulate them. On the contrary, China is still on the primary stage of mixed operation where the FHC has show the beginning while the laws to it are blank. Thus, the research on FHC overseas is to provide the experience to the one in China.(2) Due to the primary stage of the FHC in china, the self-control and the laws of it are weak. So research on the mode of regulation of FHC is to explore a suitable way of China. The paper firstly introduces the mode of mixed operation, including mighty bank and FHC. FHC can be divided into two mode, financial institute FHC and pure FHC. Each of them has their own advantages and weaknesses. Mixed operation needs more regulation because the risk has not been diversified and the government has to help it when it is in crisis due to the principle "too big to fall". And now the separate regulation doesn’t fit for this.Chapter two introduces some concepts of the FHC. Especially the risks it faces.Chapter three introduces the classification of regulation and their advantages and weakness. Then analyze the mode of America, Britain, and Germany.Chapter four focuses on the present situation of FHC in China. Classify the FHC in China and then review the history, finally analyze the problem in regulation of FHC.Chapter five draw a conclusion all the above and provide the suggestion. The main suggestions include:set up a transition stage when the co-operation system should be enhanced. After the union regulation has been set up, the idea of regulation needs changing from institute regulation to function one. Finally this paper suggests on the detail regulation of FHC, such as firewall between the products, prevention of the 3 kinds of leverage, regulation of inside deals.These papers has introduced the operation mode and risks of the FHC, and analyse and conclude the regulation mode of various countries. This paper uses the case analysis method that analyse the failure of UBS from the point of regulation to the blank area of American umbrella regulation mode. Combine the present situation of China and FHC’s development and provide the policy suggestion.

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