英国顶级高校 伦敦政治经济学院 毕业论文完全英文版.docx

1、英国顶级高校 伦敦政治经济学院 毕业论文 完全英文版MG415Summative EssaySystem reform and policyProblem of regulating financial market(in China)Candidate No 363322010-2011Public Management and GovernanceDepartment of ManagementCourse: MG 415 Policy Analysis, Evaluation and ImplementationDate of Submission required: 23rd May

2、2011(5,655 words, excluding references)A Concise Analysis and Evaluation on the Financial Regulation in ChinaIntroduction: Since China initiated its economic reform more than 30 years ago, Chinas financial industry has grown up so rapidly that it attracts increasing international attentions. Accordi

3、ng to statistics (the People bank of China, 2011), the total assets of Chinas financial industry in 2009 amounts to 153,800 billion U.S.dollars, which is more than 300 folds of that in the year 1978 when China newly unveiled its economic reform and opened up to the outside world. A striking feature

4、with Chinas financial industry is that, for decades, it had survived so many turbulences and challenges, including the economic chaos in late 1980s resulting from food price reform, spillover of the financial crisis in the Southeast Asia, direct and intense competitions from foreign banks after Chin

5、as accession to the WTO in 2002, as well as the current financial crisis commencing from 2008. No wonder that people, especially the young Chinese patriotic claim that Chinas financial industry, particularly Chinas financial regulators have been performing well enough. This leads to the illusion tha

6、t the current financial regulation in China is near perfection, and even that regulators from modern western countries should reflect and consider learning something from their Chinese peers. Trying to answer this question, I will elaborate on it in this essay, which consists of 4 sections. In Secti

7、on1, I will focus on the theories of financial regulation and try to examine the following points: why should we regulate financial industry? What is the general approach for financial regulation? What can be deemed as the appropriate qualitative and quantitative measurements for financial regulatio

8、n and supervision? In Section 2, I will explore into the current structure and arrangement for financial regulation in China and trace back to its history background. Also, a comparison is made on the financial regulation practices between China and U.K., to investigate whether or not apparent simil

9、arities and differences are existing between the two countries with regard to the regulatory and supervisory structure, sources of funding, regulatory objectives and so on. The Section 3 will focus on analysis and comment on the Chinas financial regulation. Mainly, it will review whether the current

10、 regulations have brought about effective outcomes, advantage and disadvantage of the current regulatory arrangement, and various recommendations for policy and system reform and their validity.Also,it will discuss path dependency in Chinese financial regulation through consideration of the nature o

11、f Chinas economic reform for decades. This will finally lead to Section 4, which is the conclusion of this essay. Because the banking industry possesses more than 93%of Chinas financial resources,My essay will mainly focus on financial regulation in Banking. Section 1 Rationale, general approach and

12、 measurement of financial regulation. Financial industry seems to be one of the most fragile industries in the world. Since the Industrial Revolution in western countries in the 18th century, the world has experienced financial crisis dozens of times, from the Great Depression in the late 1920s, Asi

13、as financial crisis in 1997, and down to the current credit crunch. This will certainly raise questions on the importance and effectiveness of financial regulation. From time to time, the public, politicians, and the academics have asked the same questions. Does the current financial regulation prov

14、ide sufficient oversight and at the same time mitigate financial risks? Would the situation have been not so bad if we had been given better alternative regulation arrangements? These tricky and haunting questions have profound and deep meaning. One will not understand clearly until he (she) is conv

15、inced by the theories of financial regulation. From the 18th century to the earlier 1930s, across the major western civilized countries, the major duties of financial regulators, mainly the central banks, were to act as lenders of last resort and implement the deposit insurance system. These two mai

16、n policy arrangements were heavily criticized by Hayek (1976) and Dowd (1996), who argue that market can correct its own error and imperfection through expansion and self-adaptation at last. The total power of central banks should be diminished so as to tackle inflation. At the same time, all people

17、 should be free to use currency of their own choices so as to avoid the negative impact of inflation. Moreover, they claim that there should be no wrong with free trade and laissez-faire in financial services sector if free trade is generally desirable. Their claim has been echoed by other academic

18、liberals (Benston, 1996; Kane,1997) who further argue that even there is market failure, financial regulation may still be undesirable, unnecessary and cant in practice solve the failures, and may lead to abundantly excessive regulation costs and induce serious moral hazards. These liberal ideologie

19、s in economics may not turn out to be completely convincing if one considers the devastating results of financial crisis throughout human history. Stiglitz (1993) examines the importance of information in financial market and identifies seven market failures and claims that information is a public g

20、ood and that regulation can lead to Pareto outcome by providing enough information that otherwise would not be provided under free financial market. Llewellyn(1999) outlines 6 potential benefits of financial regulation:to reduce transaction costs for consumers;to mitigate or ameliorate market failur

21、e so as to achieve efficiency gains;to improve and maintain consumer confidence;to generate positive externalities;to expel hazardous firms from the market through efficient authorization procedures;to make sure that consumers can have informed and reasonable judgments and decisions by increasing tr

22、ansparency of contracts and disclosing due comprehensive market information. In addition to the comprehensive rationale for financial regulation, he further points out that efficiently framed regulation has its limitation and in reality is unable to cover all the risks, therefore, efficient regulati

23、on should never diminish the incentive for consumers to exercise due care while they are purchasing financial products and services. Goodhart(1998) demonstrates that regulation should be needed so as to refrain monopoly or oligopoly from exploiting consumers, to protect smaller, retail clients who a

24、re less informed, to maintain financial systemic stability. They further examine and prove that systemic risk involved in banking industry is considerably more evident than in non-banking financial services in that the failure of one bank can be of contagion and lead to the withdraw of deposits from

25、 other banks and there is no well-established secondary market in bank loans. Davies (2008), however, puts it very simple that we need regulation of financial firms because we need to protect the Lender of Last Resort and deposit protection schemes. Moreover, there is information asymmetry between f

26、inancial services providers and consumers, and financial regulation and supervision may be able to correct such asymmetry. Goodhart (1998) identifies the general approach of financial regulation through incentive structures: Regulation should be regarded as a set of contracts;More emphasis should be

27、 laid on internal risk analysis, management and control systems and so on.Since the late 20th century, scholars have proposed a couple of measurements to facilitate regulation from Macro-prudential to Micro-prudential dimensions. Sundararajan (2002) created financial soundness indicators which inclu

28、de core set and encouraged set. The core set indicators mainly cover capital adequacy, asset quality, earning and profitability, liquidity and sensitivity to market risk and other factors of deposit-taking institutions. These detailed indicators include regulatory capital to risk-weighted assets, no

29、nperforming loans to total gross loans, return on assets, liquid assets to total assets, duration of assets and so on. Financial regulators are strongly recommended to apply these core set indicators. Additionally, the encouraged set indicators cover wider range of factors in nonbank financial insti

30、tutions, corporate sector, households and real estate markets. Hilbers(2000) proposed macro-prudential indicators which integrates aggregated micro-prudential indicators with macroeconomic indicators. The aggregated micro-prudential indicators, which are based on the CAMELS framework (capital, asset

31、s, management, earnings, liquidity and sensitivity to market risk), include aggregate capital ratios, sectoral credit concentration, expense ratios, return on assets, central bank credit to financial institutions, foreign exchange risk, market prices of financial instruments and other ratios. The ma

32、croeconomic indicators, on the other hand, focus on economic growth, balance of payments, inflation, interest and exchange rates, lending and asset price booms, contagion effects and other factors. These factors can be measured by aggregate growth rates, current account deficit, volatility in inflat

33、ion, volatility in interest and exchange rates, lending booms, financial market correlation, directed lending and investment and other ratios or figures. It is all known that academics around the world still produce no significant and reliable quantitative measurement to gauge consumers protection in financial s