Glamor Economics

Chapter 109

Chapter 14, Section 10 Strengthening Control and Preventing Financial Risks——Financial Control

Since the 20s, the tide of financial liberalization and financial deregulation has been higher and higher, and all countries are seeking an economic operation mechanism that reduces government intervention.Regulations may be reduced, or may disappear in some industries and fields.However, government interference cannot be eliminated as long as the government exists.The government is an important macro-environmental variable that affects enterprises and the market, and regulation is an important form for the government to perform its economic functions, and it exists with the existence of the government.Financial regulation has objective reasons for its existence.

The strong information asymmetry in the financial market is the primary reason for the existence of financial regulation.If traders possess asymmetric information, the market mechanism cannot achieve efficient resource allocation.Information asymmetry in the financial market is mainly reflected in the risk identification and avoidance between financial institutions and financial product demanders.Financial regulation can effectively solve the problem of information asymmetry in financial operations and avoid large fluctuations in financial operations.

Facts have shown that it is difficult to achieve complete free competition in the financial market.As the main body of financial innovation, financial institutions always consider issues from their own micro-interests, which determines that it is impossible to fully consider the macro-interests when making decisions, and even implement some illegal risks that evade regulations in order to maximize their own profits. At the same time, in order to prevent the increase of operating costs, it neglects the standardization and monitoring of operating procedures, which affects its ability to prevent and control risks.

Financial regulation is a form of government regulation. It is an institutional arrangement to ensure the stability and safety of the financial system and ensure the interests of investors. A financial management system provided by the government or society to correct market failures in the event of externalities, externalities, asymmetric information, and monopoly, etc.From this perspective, financial regulation at least has the property of Pareto improvement, which can improve financial efficiency and social welfare.However, whether financial regulation can achieve Pareto efficiency also depends on the information capability and supervision level of the regulatory authority.Pareto efficiency is achieved if information is complete and symmetrical, and regulation can fully correct the externalities of the financial system without itself causing a loss of social welfare.The assumption of complete information and symmetrical information cannot be established in the real economic society. It is this reason that forms an important factor that triggers the financial crisis——the general moral hazard behavior of financial institutions, resulting in the inefficiency of financial supervision and social loss of benefits.Therefore, financial control has also become the focus of economic work of many governments.

Our country's financial regulation mainly starts from five aspects.

The first is to correctly handle the relationship between domestic demand and external demand, further expand domestic demand, appropriately reduce the dependence of economic growth on external demand and investment, strengthen the coordination and cooperation of macroeconomic policies of finance, currency, trade, industry and investment, expand consumption and domestic demand, and reduce savings rate, increase imports, and open markets to promote economic restructuring and promote a balance of international payments.

The second is to improve the monetary policy transmission mechanism and environment, enhance the effectiveness of monetary policy, promote the development and improvement of the financial market, catalyze the reform of financial enterprises and state-owned enterprises, further transform government management, improve the indirect regulatory mechanism, and maintain and promote the stability of the financial system. run.

The third is to actively and steadily promote the market-oriented reform of interest rates, establish and improve the interest rate formation mechanism determined by market supply and demand and regulated by the central bank through the use of monetary policy tools, effectively use and comply with market expectations, and enhance the transparency and credibility of monetary policy.

The fourth is to strengthen the coordination and cooperation between monetary policy and other economic policies, and strengthen the coordination and cooperation between monetary policy and financial supervision. The coordination of policies and industrial policies, guided by the national economic development plan, guides financial institutions to conscientiously implement the requirements of national industrial policies, further optimizes the credit structure, and improves financial services.

The fifth is to further improve the initiative of financial funds, vigorously expand the bond market, encourage bond product innovation, promote the development of institutional investors, increase the cultivation of trading entities and intermediary organizations, accelerate the construction of the basic system of the bond market, and further promote the coordinated development of the financial market.

Financial control is an important part of macro-control.Together with strategic guidance and fiscal and taxation regulation, it constitutes the main means of macro-control. They are interrelated and cooperate with each other. Their common goals are to promote economic growth, increase employment, stabilize prices, and maintain a balance of international payments.

[links to related words]

Financial regulation refers to the management and restrictions imposed by a government on all aspects of financial institutions and financial market activities in order to maintain the stable operation and overall efficiency of the financial system, including market access, business scope, market prices, asset-liability ratios, and deposit insurance. etc. controls.

Direct credit control means that the central bank directly controls the credit activities of financial institutions, especially deposit money banks (also known as commercial banks), in terms of quality and quantity by administrative orders or other means.Its means include interest rate ceiling, credit quota, current ratio and direct intervention.

Indirect credit guidance refers to the central bank's indirect influence on the credit creation of deposit money banks through moral advice and window guidance.Moral persuasion means that the central bank uses its prestige and status to frequently issue notices or instructions to deposit money banks and other financial institutions, or interview the heads of various financial institutions, advising them to abide by government policies and automatically take corresponding measures to implement the policies.

Window guidance means that the central bank proposes credit increase or decrease suggestions to deposit money banks based on new situations and new problems emerging in economic operations such as industrial market conditions, price trends, and financial market trends.If the deposit currency bank does not accept it, the central bank will take necessary measures, such as reducing the amount of its loans, or even taking sanctions such as stopping the provision of credit.Although window guidance is not legally binding, its influence is often relatively large.

The advantage of indirect credit guidance is that it is more flexible, but to work, the central bank needs to have a high status in the financial system and have sufficient legal rights and means to control credit.

(End of this chapter)