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The pass their control of the risks of the financial holding company

Author: HuoAiYing From: www.yourpaper.net Posted: 2009-10-13 05:37:03 Read:
[Abstract] This is the first systematic analysis of the risk of transmission of the financial holding company involved in the concept of the risk of transmission, causes operational mechanism, hazards, and prevention and control. Economic relevance of environmental identity, confidence radiation is the main causes of risk transfer. Proposed the establishment of an effective system "firewall" to prevent the risk transfer. Due to the presence of the "through the wall" behavior may lead to a "firewall" to failure, but also its own to strengthen internal control, combined with the financial regulatory authorities in the implementation of effective regulatory, common to achieve control of risk transfer.
[Key words] financial holding company; risk transfer; "firewall" system

The collapse of Barings Bank in 1995 and a few years ago, China Everbright Bank payments crisis can prove the harmfulness of risk transfer, and Venezuela's banking crisis in 1994 cases highlight the fact that the risk of passing the financial holding company model reality and harm. Effective control of the financial holding company risk transmission is an important part of the financial holding company's risk management. Risk passed under the control of the financial holding company model, mainly through the financial holding company to build a firewall may lapse caused due to the presence of the "through the wall" behavior "firewall" Therefore, we must own to strengthen internal control, financial regulatory authorities to work together to implement effective regulation achieve risk transfer control.

First, the risk of passing the meaning

So-called risk transfer (Contagion) called risk spread, the risk of infection, the risk of the spread of the risk of the risk of a domino effect or contagious effect (Contagion Efects), the concept has not been accurate definition, few or as an independent object of study systematic research. Generally believed that the risk pass proliferation risk, magnify the form of a mechanism. Refers to a member of the Group's operating incidents could trigger another member of liquidity difficulties, or significantly affect the amount of the latter's business. The financial holding company, the risk may be transferred from the unregulated enterprises within the Group to regulated financial institutions, or risk financial institutions within the Group mutual transfer of this process is to the risk pass (Contagion). Risk transfer performance is characterized by a "snowball" effect, such as investment banking losses, the company in order to maintain credibility in the financial markets or rating, it must be the capital of the other business of the Group companies provide them with assistance. Any part of the Group's internal problems will cause the entire market to lose confidence in other parts of the Group, so as to cut off sources of funding affect the liquidity of the financial group, or even bankruptcy. Systemic risk a great impact on the financial sector as well as the overall economy, which is a "domino effect". The financial holding company organizational structure prone to systemic financial risks. This is because: First, the financial holding company to occupy most of the financial and economic control of financial resources, and thus the overall economy exposed to risk them, so the government, financial authorities will do everything possible to rescue; second is a financial holding company and industry contacts close, makes the risk easier to pass.

Second, the risk of passing the causes

Economic relevance, the environment identity with confidence radiation causes of risk transfer.
1. Economic relevance. Risk transfer on the basis of insider trading is that the financial holding company. Insider trading of the financial holding company (intra-group trans-actions), occurred between members of the Group's assets and liabilities. These assets and liabilities can be determined, such as loans and investments; may be some, such as intra-group guarantees and transfer pricing. Financial holding company within the complex shareholding relationships and movements of capital chain makes internal transactions between parent companies and subsidiaries or between the subsidiaries and the subsidiaries, and become an important element of their business strategy or the basic financial leverage work. Affect each other due to the interests of the members of the Group, insider trading is not only the group members may overstate profits and asset levels, leading to the authenticity of its information disclosure and transparency are greatly reduced, but also greatly increase the possibility of insider trading, the concentrated expression: domino mask the true level of non-performing assets and profits of authenticity, the manufacturing asset bubbles and traps, unfair price transactions, harm the interests of minority shareholders and creditors, to pass, and hidden accumulation crisis that triggered the financial group effect. Improper insider trading and related party transactions of existing financial holding company, in addition to circumvent the law (especially tax law) on the restrictions associated loan guarantees, there are still the principal-agent problem, which is linked to personal interests. With the complexity of the organizational structure of the Group, insider trading may become a large-scale, not only difficult for regulatory authorities to understand their risk, even the Group headquarters may be difficult to grasp the overall effect.
2. Environment the same. First, the financial enterprises engaged in high-risk operations. Banks, first of all, it is the high leverage business, equity capital relative to the very small proportion of the total assets of the extremely limited ability to digest the loss of assets. Secondly, the assets and liabilities of the deadline does not match would cause liquidity defects; once again, the the external market scale, the presence of risk customers and banks operating scale and capital constraints caused by the banks ability to resist risks defects; Finally, the bank is risk management industry its risk management does not necessarily successful, flawed risk management can breed and exacerbate the risk. Second, the financial enterprises due to the fierce competition in the market and the pressure to survive, the motives of excessive borrowing. It is because there is a certain degree of over-borrowing motivation each financial enterprises, such motives together to reflect the overall level course on the performance of the financial system as a whole has the urge to over-borrowing. The decline in excessive borrowing will make efficient use of funds, and increased the possibility of risk occurrence. Financial corporate customers and financial enterprises, financial enterprises, regulatory authorities, financial enterprises between different due to dominance of the two sides in the process of information transfer is asymmetric information. Party in an information advantage tend to take advantage of that adventure, and interests in the loser is likely to infringe, risk-taking behavior exacerbated the risk, so that the entire financial market credit deterioration.
3. Regulatory system defects. The inherent vulnerability of the financial system can not be changed. Financial regulation is the main way people against the fragility of the financial system, however there are also many institutional defects. First regulatory always lags behind the current situation of the development of the financial sector, because the first financial activities, financial sector development to a certain stage, people began to find it necessary to take the initiative to supervise it, and always have an understanding of the process of financial innovation, only familiar with and understand the characteristics of financial innovations before its effective supervision, the which time errand regulatory always lagged behind the reality of the development of the financial sector. Second, the regulatory philosophy behind can lead to a regulatory effect is greatly reduced. Again, the independence of the regulators are not effective protection is also one of the deficiencies in the system. Regulators in regulatory independence is not enough, are susceptible to interference from all sides, so that the deviation from the regulatory objectives to be achieved. Thirdly, lack of effective constraint on the regulator's powers, regulators would be abuse of regulatory powers, even collusion with damage to the interests of the public and the regulated. Finally, the regulatory institutions set the terms of reference configuration is not well adapted to the development of the financial sector, but also one of the reasons why regulatory inefficiencies.
Confidence radiation. Public confidence in the external environmental conditions, but also the financial business to continue as a going concern financial market transactions proceed smoothly. Public due to a lack of expertise in financial transactions in a weak, but their large number, in general, the impact of the financial markets, it is decisive, once the public lost confidence in the market, the financial system as a whole is also the brink of collapse. The herd mentality (also known as herding) refers to the tendency of people to follow the action of most people in the behavior. In the financial markets, the movement of people with strong herding colors, especially signs of local or individual financial crisis, people seek security mental will guide them to follow the behavior of most people to take action. , It is impossible to collect all the information related to deal with yourself to be engaged in financial transactions, so the information is incomplete situation is an immutable fact that this information is incomplete status to the transactions in information superiority financial enterprises in order to conceal the transaction information is not conducive to their own convenience, but public information disadvantage will try to protect their own interests through various channels to collect information to improve the accuracy of their transactions to judge. One of the channels of the collection of information is an informal exchange of information between the public, the possibility of this mode of transmission distortion. However, when the public have doubts about the authenticity of the information passing through official channels (due to past trading experience), they will not hesitate to turn to with the informal channels of information transmission seems less reliable even than formal channel the message is more real. This pessimistic attitude in the public market credit spread of informal channels is likely to dominate the public's judgment, even if the this information distortion ingredients to, informal channels of information describes the causes of the crisis and progress will be smaller than formal channels of transmission of information faster, broader and also encourages the public to believe that the financial crisis will evolve into a systemic financial crisis with this informal exchange of information and quickly pass. Run, risk transfer mechanisms
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