Journal of Chine Economic and Business Studies
Vol.6,No.4,November2008,385–405
Dream of the red financial supermarket:the gradual emergence of integrated financial rvices provision in China in the21st century Sebastian Bru ck a and Laixiang Sun b,c,d*
a Boston Consulting Group,Hamburg,Germany;
b Department of Financial and Management Studies,SOAS,University of London,UK;
c International Institute for Applie
d Systems Analysis, Laxenburg,Austria;d Guanghua School of Management,Peking University,Beijing,China (Received27September2007;final version received23January2008)
While the current regulatory trend in the area of banking scope regulation favours
integrated financial rvices provision,China continues to restrict commercial
banks’permissible range of business activities via its1995Commercial Bank Law.
In this article,we propo an analytical framework that explicitly incorporates the
sophistication-level constraint of a country’s financial system into the regulatory
trade-off calculation between banks’need for new growth opportunities and an
excel每页都有表头怎么设置incread risk of financial instability.Applying this framework to China,we first
discuss the episode of financial instability that led policy-makers to re-gment
the financial industry in1995and then analy the rationale behind China’s
recent,gradual movement back towards integrated financial rvices provision.
While improved risk management capabilities mean that China may now be ready
for a more liberal banking scope regulatory regime,we find that a financial crisis
could still derail this important element of China’s financial ctor reform
我的母亲老舍原文strategy.
Keywords:financial regulation;integrated financial rvices;banking;China
JEL Classifications:E44;G28;K23;L51
1.Introduction
Over the past two decades,financial ctor regulators in North America,Western Europe and East Asia have taken an increasingly liberal approach to determining commercial banks’permissible business scope.In contrast to earlier times,commercial banks are now commonly authorized to conduct not only traditional intermediation activities such as deposit taking and loan extension but are free to expand into investment banking(including curities underwriting,trading and brokerage),ast management(encompassing‘alternative’ast class such as hedge and private equity funds)and insurance.
*Corresponding author.Email:laixiang.sun@soas.ac.uk
ISSN1476–5284print/ISSN1476–5292online
ß2008The Chine Economic Association–UK
DOI:10.1080/14765280802431696
386S.Bru¨ck and L.Sun
While the current global regulatory trend in the area of banking scope regulation thus favours integrated financial rvices provision(IFSP),the People’s Republic of China (from here on,China)continues to restrict commercial banks’permissible range of business activities via its1995Commercial Bank Law.With the formal gmentation of the financial industry remaining in place,recent years have also en a gradual relaxation of Chine regulators’approach to tting the permissible business scope of the country’s commercial banks.
In this paper,we examine China’s slow movement towards the emerging global regulatory norm of integrated financial rvices provision.To develop an analytical framework that is capable of capturing the country-specific cost-benefit dynamics of regulating banks’permissible business scope,we first review the policy options of ‘universal banking’,‘broad banking’and‘specialized banking’,asss the contemporary global shift towards de-gmented financial ctor regulation,and analy the benefits and costs of integrated financial rvices provision.We highlight that granting banks greater freedom in tting their activity scope entails certain benefits,for example the opportun
ity for commercial banks to pursue new growth opportunities in the face of credit disintermediation,but also potentially generates significant risks,such as the costly conflicts of interest and an incread risk of financial instability.How the benefits and costs play out in a specific country will depend on the level of sophistication the country’s financial system has achieved,including the quality of its regulators and financial firms. Hence,we propo a matrix-bad framework to capture the relationship between the sophistication level of a country’s financial system and the cost-benefit calculation of the integrated financial rvice provision.
An application of this framework to the ca of China shows it was precily the conflicts of interest and financial instability tending to be associated with hastily implemented banking scope deregulation schemes that prompted Chine policy-makers to parate the country’s commercial banks from non-bank financial institutions such as trust and investment and curities companies via the passage of the1995Commercial Bank Law.On the other hand,as both Chine regulators and banks have improved their risk management capabilities in recent years,which implies a growing sophistica-tion of China’s financial system,Chine financial institutions may,in the near future again be granted greater freedom in tting their business scope.Indeed,three ‘experimental’financial holding companies(CITIC,Everbright and Ping An)have already come into existence in the recent pa
st.The new developments suggest that a formal move towards IFSP,for example via the enactment of a Chine financial holding company law,would benefit not only financial ctor players such as Chine commercial banks and insurance companies in their competition with foreign entrants but could also offer advantages to Chine corporate and retail financial rvices customers as well as financial ctor regulators.Nevertheless,before the problem of persistent soft-budget constraint in the state-dominated financial ctor is reasonably resolved,a formal move to IFSP would create moral hazard and other destabilizing troubles.
寻找风The rest of the paper is organized as follows.Section2develops the analytical framework.Section3examines the evolution of China’s banking regulatory regime and asss its past departure from,and recent convergence towards,global practices.Finally, Section4prents concluding remarks.
2.Banking scope regulation:policy options,recent developments and the associated cost-benefit trade-offs
2.1.Basic banking scope regulatory policy options爱婴医院
Three basic approaches to regulating commercial banks’permissible business scope can be distingui
shed,which differ in their respective answers to the following questions.First,can commercial banks engage in investment banking and insurance rvices or are they restricted to more traditional commercial bank functions?Second,if they are permitted to offer a broad range of rvices,will the be offered by an integrated financial institution or a holding company structure (Figure 1)?1
Reprenting a first policy option,universal banking denotes a system where financial institutions offer a range of financial rvices.Under such a regulatory approach,banks are allowed to take deposits and extend loans,ll (but not necessarily underwrite)insurance as well as underwrite and deal in curities.Organizationally speaking,universal banking can draw on the integrated banking model,where curities activities,for example,simply take place within a department of a commercial bank (Benston 1994).In addition,universal banks may also offer some or all of their non-bank activities via parate subsidiaries (Saunders and Walter 1994).2
A cond,rather liberal,approach to banking scope regulation is known as broad banking (Barth,Brumbaugh Jr.,and Wilcox 2000).Here,banks are also allowed to offer a wide range of financial rvices but typically have to do so via an indirect organizational structure.Thus,broad banking normally requires tting up a holding company structure for the purpos of business diversification.Establishing a ‘cushion’between different financial business,the holding company o
wns and operates commercial banking,capital markets and insurance subsidiaries that are legally parate and have their own capital (Koguchi 1993).
Universal and broad banking contrast with a system of specialized banking,where integrated financial rvices provision is not permitted and different financial business lines remain parate.Under this approach,banking rvices,curities business and insurance activities are all offered by parate financial institutions and cross-penetration of financial markets is not permitted.Activity Scope Unrestricted Restricted
H i g h
NA O r g a n i z a t i o n a l i n t e g r a t i o n L o w Broad banking** (for example US after 1999) Specialized banking (for example US prior to 1999)石头鉴别
Note: * Different financial rvices are typically offered directly by the same institution or by subsidiaries.
** Different financial rvices are offered indirectly via a holding company structure. Note that rules governing
information sharing between various holding company subsidiaries differ between countries.
*** The shaded area corresponds to banking scope regulatory regimes that allow for ‘integrated financial
rvices provision’.
Universal banking* (for example Germany) Figure 1.Stylized policy options for regulating banks’activity scope and organizational form.
Journal of Chine Economic and Business Studies
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388S.Bru¨ck and L.Sun
治支气管炎最佳药2.2.Emergence of the mega-banks:the ri of integrated financial rvices provision Despite a continuing degree of national diversity,the1990s and the early21st century have en a clear trend towards more liberal banking scope regulation and actual banking practices in the world’s most important financial systems(Koguchi1993;Jackson and Symons Jr.1998;Sheah and Sun1999).3Put d
ifferently,in terms of Figure1regulators have begun moving in the direction of universal and broad banking.As Ferran and Goodhart(2001)point out:
The growth of‘universal’financial rvices firms–financial conglomerates that operate across traditional ctoral boundaries–and the blurring of distinctions between financial products through condary market techniques such as curitization and derivatives trading have outpaced the old functionally-driven approach to regulation[...].
European countries such as Germany,France and the United Kingdom as well as Australia,New Zealand and Canada have already allowed universal banking in the past or adopted it over the cour of the1980s or early1990s(Koguchi1993;Barth,Nolle,and Rice1997).In the United States,adoption of the Gramm-Leach-Bliley Act in1999implied a shift from specialized towards broad banking(Bhattacharya,Boot,and Thakor1998).
圣诞节用英语怎么说
In the East Asian context,Japan,too,moved towards allowing banks more freedom in choosing their product mix over the1990s.Hence,in1993,Japane commercial banks were allowed to conduct curities business via parate subsidiaries(Borio and Filosa 1994).Subquently,the1996‘big bang’banking reform was,among other objectives, aimed at introducing greater product competition i
查询职业资格证书nto Japan’s financial system via increasing banks’business scope(Laurence1999).Following the‘big bang’and further legal changes,it became possible for Japane lenders to establish financial holding companies(Chiou and White2005).
Similarly,South Korea and Taiwan have recently followed advanced economies and moved towards greater liberalization of banks’business scope(Park1999).Beginning with banking systems that initially did not allow activity diversification and integration, Korea’s and Taiwan’s passage of their respective Financial Holding Company Laws in 2000and2001concluded a movement towards integrated financial rvices provision that had begun in the early1990s in both countries.
As indicated in the introduction,China meanwhile continues formally to parate its commercial banking ctor from the country’s curities and insurance industries via its 1995Commercial Bank Law.
2.3.Beneficial aspects of bank business scope deregulation
What broad factors explain this change in regulatory ntiment?As noted by a number of authors,an important part of the answer to this question relates to the fact that credit disintermediation has become more pronounced over the last two decades(e Rehm and Simmert1991;Swary and Topf1
992;Koguchi1993;Kroszner and Rajan1994;Canals 1997).4
On the ast side of banks’balance sheet,earnings related to traditional banking rvices,such as simple loans,have come under significant pressure as financial and technological innovations increasingly allow non-financial companies to rai money directly in capital markets.Thus,non-financial companies nowadays demand a different t of financial products from their financial intermediaries.Moreover,on the liability side
Journal of Chine Economic and Business Studies389 of their balance sheets,banks now have to fiercely compete for funds,as depositors today also invest their savings in,for example,money market and mutual funds.Ageing populations as well as steadily rising per capita incomes in advanced economies account for this change in retail customers’preferences(Rehm and Simmert1991).
Advances in financial engineering techniques and telecommunications(the spread of the internet,in particular)have magnified the effects of credit disintermediation,which can in fact also be viewed as a ca of‘information disintermediation’(Fawcett2001;Hawkins and Mihaljek2001).In this regard,Greenbaum and Thakor(1995,762)write: Ironically,banks are the victims of their own success.They worked hard to make opaque asts transparent.They have been successful,but this
also means that others can readily evaluate the asts,narrowing the rents that banks can earn.Banks have worked hard to make illiquid asts liquid.Securitization has been an impressive success,but it means investors can now fund opaque asts directly in the capital market,obviating the need for deposit funding.
Put differently,commercial banks’post-Second World War success in dealing with credit,liquidity and interest rate risks has often turned previously valuable information about borrowers and lenders into a cheap,readily available commodity.As a result,banks’privileged position in the intermediation process has become critically undermined.
In practice,credit disintermediation implies a reduction in commercial banks’profit margins.To address this demand-led challenge,the pursuit of new sources of revenue growth or cost savings has become esntial for commercial banks operating on the supply side of the financial system(Koguchi1993).In order to boost earnings,banks can either strengthen efforts to grow organically and/or engage in mergers and acquisitions(M&A) to acquire new banks or other financial institutions such as investment banks and insurance companies.Cost savings,on the other hand,can follow from internal streamlining efforts as well as from the scale and scope economies potentially associated with M&A activity.Advances in information and communications technology have meant t
hat the scale and scope economies are enjoyed more easily today than was the ca in the past(Berger,Demtz,and Strahan1999),assuming that the regulatory environment actually permits their exploitation.
The indicated,worldwide legislative and regulatory initiatives that allow for integrated financial rvices provision can therefore,in fact,be understood as a reaction to the challenge of credit disintermediation,which puts increasing pressure on banks’traditional business model.Liberalization of banks’business scope offers lenders the chance to pursue organic growth via offering a greater variety of fee-bad rvices.Typically,the blurring of the boundary between traditional lending and capital markets activities has already led commercial banks to venture strongly into off-balance sheet,fee-earning activities such as loan commitments,guarantees and curitization rvices(Greenbaum and Thakor1995, 780).Further deregulation of permissible activities expands banks’opportunities in this area,allowing them to meet their corporate customers’changing demands while also potentially opening up new,mostly risk intermediation-centred growth areas such as (derivatives)trading,(prime)brokerage,hedge fund and private equity operations.5 Moreover,deregulation also opens the door for mergers and acquisitions activity that can further boost commercial banks’revenues as well as imply potential cost savings.
Arguably,then,the deregulation of commercial banks’permissible business scope allows the latter to deal successfully with the challenge of credit disintermediation by opening up new growth opportunities and/or reducing the cost ba of running
