When I had an internship in Industrial
and Commercial Bank of China, a lot of things impressed me. For instance,
helping an arrogant client to inventory and deposit 600,000 pounds-in cash.
But I do find out some measure of
regulation in China. Some are quite similar with which are carried out
worldwide.
The first one is deposit insurance,
which is very common. For banks, compared to the way of direct financing, bank
loans solve the problem of free ride for banks. But for their clients, they
still worry about the issue of asymmetric information. So at this time, what
the government should do is to recover the public confident and protect the
clients. One of the most effective measures is, of course, deposit insurance.
The first institution that established deposit insurance is Federal Deposit
Insurance Corporation of USA (FDIC).
The second way is the limitation to
capital and asset. As for the asset, the government limits banks holding highly
risky asset, for example stocks, and encourage banks to diversify their
investment. As for capital, government requires banks to meet the capital adequacy
ratio, which reflects whether the operation of bank is “healthy” or not.
The third is to regulate the quality of
assets. The second one, which listed above is a traditional way and is improved
by this one. I find out that today, most of countries use CAMEL system. C-capital,
A-asset, M-management, E-Earning, L-liquidity.
The last one I think is to prevent
excessive competition. In China, there are a lot of commercial banks, some of
them I even did not hear them before. So government prevent them to engage in
excessive competition because this will lead them to pursuit profit so that
they will seek for some highly profit but highly risky project.
That’s the end of my blog. As a blog,
some of the article should be short, but I will add some in my presentation, so
expect for it!!
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