The crisis faced by banks

Abstract: Bank crisis is the biggest threat and destruction to financial security. Establishing a standardized and legal crisis relief system is of great significance for improving the ability and efficiency of coping with the crisis and ensuring financial security. Banks in China should reform the lender of last resort system, improve the system of bank takeover and merger, and establish a deposit insurance system.

Keywords: lender of last resort system, acquisition and merger system, deposit insurance system

In recent years, with the acceleration of China's financial marketization and internationalization, the intensification of competition in the financial industry and the continuous emergence of global financial crisis, there are more and more factors affecting the stability and security of China's financial industry, which makes us face great pressure. Financial industry is the core of modern economy, and banking is the core of financial industry. The banking crisis not only threatens the survival of banks themselves, but also affects financial security, economic development and social stability. How to establish a perfect legal system of bank crisis relief, improve the ability and efficiency of crisis response and ensure financial security is a problem that we must pay attention to. As far as foreign legislation is concerned, there are mainly three legal system arrangements for bank crisis relief, namely, lender of last resort system, deposit insurance system and taking over or organizing the merger of crisis banks. China's current legislation also provides for bank crisis relief, but from the operation practice of the crisis response legal mechanism, there are still shortcomings in the bank crisis relief legal system, which are highlighted by the imperfection of the existing system and the absence of the system. In this regard, we urgently need to reform and improve the lender of last resort system of the central bank and the takeover and merger system of crisis banks, and establish a clear deposit insurance system as soon as possible.

First, reform the lender of last resort system of the central bank.

Lender of last resort system is an institutional arrangement for a country's central bank to perform the banking functions of banks and provide emergency assistance to banks with temporary liquidity difficulties. Its purpose is to prevent the temporary liquidity crisis from turning into liquidation crisis and systemic crisis. The crisis relief function of the lender of last resort system is that the central bank can help the banks in trouble get out of trouble by providing emergency liquidity support, that is, emergency loans. The original intention of the central bank system is to prevent banking crisis and stabilize finance. Therefore, as a lender of last resort, it is a common practice all over the world to provide liquidity support to banks that may or have already experienced credit crisis.

In China, the central bank mainly provides refinancing to help banks caught in liquidity crisis. Article 28 of the Law of the People's Bank of China stipulates that the People's Bank of China may decide the amount, term, interest rate and method of loans to commercial banks according to the needs of implementing monetary policy, but the loan term shall not exceed one year; Article 22 of the Interim Measures for Financial Institutions to Prevent and Dispose of Payment Risks stipulates that financial institutions that need to provide liquidity support through refinancing of the People's Bank of China after payment risks appear shall be reported to the Head Office by the provincial branch of the People's Bank of China for approval. As the central bank of China, the People's Bank of China has played the role of lender of last resort for many times in rescuing crisis financial institutions. During the period from1997 to1998, 42 institutions with problems in absorbing public deposits were closed by the People's Bank of China according to law. In order to prevent these individual and local risks from turning into systemic, regional and even national crises, the People's Bank of China has provided huge emergency liquidity support to these institutions in the process of dealing with problem institutions. (Note: Zhou Qingjie: Lender of Last Resort Policy for Problem Banks, Financial Theory and Practice, No.2, 2003. )

From the perspective of legislation and practice, China's lender of last resort system has played a certain role, but there are still some defects: First, the rescue standard is not clear, and there is no clear legal provision on which institutions should be rescued and to what extent, so that the rescue of financial institutions in crisis is basically unlimited in practice. "Providing loan assistance to all financial institutions in crisis and overprotecting all depositors objectively encourages bank speculation and intensifies financial risks." (Note: Ma Weihua: Research on WTO and the Legal System of Financial Supervision in China, Renmin University of China Press, 2002, p. 123. Second, the rescue tools are single. At present, refinancing, rediscounting and other means are not used much, and refinancing is mostly credit loans and mortgage loans are rare; Third, the right to rescue is too concentrated, which shows that most of the financial institutions that have problems at present are local small and medium-sized financial institutions. The Interim Measures for Financial Institutions to Prevent and Deal with Payment Risks stipulates that for financial institutions that must provide liquidity support through refinancing of the People's Bank of China after payment risks occur, the provincial branches of the People's Bank of China should put forward plans and report them to the head office for approval, which makes the branches in the front line of supervision have no decision-making power in the use of refinancing, which easily delays the best opportunity to rescue the market; Fourth, when the central bank provides emergency liquidity support, it lacks clear supporting measures to punish the decision makers and beneficiaries of the bank's reckless behavior.

In view of the above problems, the author thinks that the lender of last resort system in China should be reformed from the following aspects:

First, establish clear rescue rules. At present, there are different views on whether the central bank should design some clear rules when providing liquidity assistance. During the period of 1974, the central bank governors of the Group of Ten and Switzerland issued a statement saying that it is not feasible to determine the specific rules of liquidity support in advance, because making the central bank's commitment clear and concrete may lead to the bank's dependence on the liquidity support of the central bank. (Note: Meng Long: Comparison of Financial Supervision in Market Economy Countries, China Financial Publishing House, 1995, p. 162. Some scholars also believe that the criteria of the lender of last resort of the central bank should not be too clear, otherwise it will easily lead to moral hazard, that is, if banks form the expectation that the central bank will rescue the crisis, they will often engage in too many high-risk activities. Therefore, we should implement "constructive ambiguity" to make banks uncertain whether they are the recipients of aid, and put pressure on them to act cautiously. (Note: Yang et al.: Presumption ambiguity of lender of last resort, China Foreign Exchange Management, 1, 2003. The author believes that it is necessary for China to formulate clear rescue rules. First, it can prevent the abuse of emergency loan assistance caused by the illegal intervention of the central bank. Setting rules in advance is helpful to judge whether to abuse power and strengthen public supervision over the behavior of the central bank; Second, in the absence of experience, clear rules can make the rescue work have rules to follow and laws to follow, and reduce the randomness and blindness of loan decision-making; Third, increasing the transparency of emergency rescue can reduce uncertainty, have a soothing effect on financial institutions and depositors, and generate good psychological expectations for the central bank to rescue the crisis, thus weakening the psychological motivation of depositors to participate in the run and giving public confidence.

Second, improve the operation of the money market and the open market, and create conditions for the timely, flexible and effective use of the central bank as a last resort. At the same time, it is necessary to establish and improve the mortgage loan system in refinancing to ensure the security of the central bank's refinancing.

Third, reasonably divide the responsibilities of the head office and branches at all levels of the People's Bank of China in crisis rescue, and divide the authority to use refinancing and deposit reserve between the head office and branches according to the amount, so as to seize the rescue opportunity, reduce the delay cost, improve the rescue efficiency, prevent the spread of the crisis and reduce the losses of depositors to the maximum extent, and prevent the crisis of a single bank from turning into a systematic crisis.

Fourth, strengthen the cooperation and coordination between the central bank and the banking supervision institutions in the State Council. After the establishment of China's banking supervision and management institutions, the central bank is responsible for the formulation and implementation of macro-monetary policies, and the banking supervision and management institutions are responsible for the supervision and management of the banking industry. The division of functions determines that only banking regulators can quickly obtain information about financial risks, while banking regulators cannot provide financial assistance to financial institutions with bank run risks, because the central bank is the lender of last resort. Financial risks are generally temporary and sudden, and serious social problems will occur if they are not rescued in time. Therefore, under the new supervision system, it is necessary to strengthen cooperation and coordination between the central bank and banking supervision institutions. In this regard, the revised Law of the People's Bank of China has made corresponding provisions. Article 9 of the Law of the People's Bank of China stipulates that the State Council shall establish a coordination mechanism for financial supervision and management; Article 35 stipulates that the People's Bank of China shall establish a supervision and management information sharing mechanism with the banking supervision institution in the State Council and other financial supervision institutions in the State Council. The Banking Supervision Law 65438+ passed on February 27th, 2003 also made the same provision. These regulations are of great significance for the central bank and banking regulators to form an institutionalized inter-departmental cooperation and coordination mechanism in preventing and handling financial risks, and provide a good normative basis for better playing the role of the central bank as a lender of last resort.

Second, the perfection of crisis bank takeover and merger and acquisition system.

The takeover of crisis banks refers to the legal act that the financial regulatory authorities set up a takeover organization according to law, forcibly intervene in crisis banks, exercise the right of management, prevent their assets and business from further deteriorating, protect the interests of depositors and other creditors, and restore the bank's operating ability. It is a rescue measure for banks that are in trouble and on the verge of bankruptcy but have the value of continuing to operate. M&A Bank is the abbreviation of merger and acquisition, which has nothing to do with banking crisis, but from the perspective of foreign legislation and practice, quite a few banks M&A are related to banking crisis. The takeover and merger system of crisis banks is an indispensable legal system to save crisis banks. The stability of banking is directly related to the prosperity and development of a country's economy. It is necessary to establish a crisis bank takeover system through legislation. For banks that have or may have a credit crisis and seriously affect the interests of depositors, the financial supervision department will take over and reorganize their business, which may avoid or reverse the credit crisis that has already occurred and restore the normal operation of banks, thus reducing or avoiding the social impact brought about by bank failures. Through mergers and acquisitions, the creditor's rights and debts of crisis banks are borne by the acquirer, which can not only preserve the operating foundation of banking institutions and maintain the continuity of financial services, but also protect the interests of depositors, avoid financial panic and maintain the stability of financial order, thus greatly reducing the social cost of coping with the crisis.

The takeover and merger system of crisis banks in China is mainly established by the Commercial Bank Law. Article 64 of the law stipulates that when a commercial bank has or may have a credit crisis, which seriously affects the interests of depositors, the the State Council Banking Regulatory Authority may take over the bank; Articles 65 to 68 stipulate the issuance of the takeover decision, the implementation of the takeover organization, the duration of the takeover and the termination of the takeover. Article 38 of the Banking Supervision Law also stipulates that if a banking financial institution has or may have a credit crisis, which seriously affects the legitimate rights and interests of depositors and other customers, the the State Council banking supervision institution may take over the banking financial institution according to law. Article 25 of the Commercial Bank Law stipulates that the provisions of the Company Law shall apply to the division and merger of commercial banks. Therefore, the merger and acquisition of commercial banks in China is mainly carried out in accordance with the company law.

Investigating the takeover and merger system of crisis banks in China, there are many shortcomings that need to be improved:

One is about the takeover criteria. Both the Commercial Banking Law and the Banking Supervision Law stipulate that when a banking financial institution "has or may have a credit crisis" and "seriously affects the interests of depositors", the the State Council banking supervision institution may take over it. There is a lack of a relatively clear definition of the measurement standard of "credit crisis has occurred or may occur" and the judgment standard of "seriously affecting the interests of depositors". The ambiguity of takeover criteria will affect the crisis management department to make a quick judgment, and then intervene in the crisis organization to solve the crisis in time and quickly. It is suggested that China should refer to relevant foreign legislation and establish basic takeover standards.

The second is restructuring measures. After taking over a bank in crisis, the taking-over institution should take a series of rectification measures to save the crisis and help the bank recover its normal operating capacity. Reorganization measures are the key to save the banking crisis, and legislation should be clear, but China's "Commercial Bank Law" and "Banking Supervision and Management Law" have not made any provisions on this. The author believes that the reorganization measures should include: rectifying and reorganizing the taken-over banks; The People's Bank of China issues temporary loans and gives financial help; Clean up property, collect creditor's rights, etc.

The third is about the necessary restrictions on the behavior of acquisition institutions. China's current legislation lacks restrictions on the behavior of takeover institutions, which gives takeover institutions greater freedom to deal with crisis banks. In order to prevent the abuse of power, ensure the legitimate rights and interests of the taken-over bank and realize the purpose of taking over, it is necessary to restrict the behavior of the taking-over institution. If it is stipulated that all actions of the takeover organization should be based on the premise of saving financial institutions, protecting depositors' interests and maintaining financial order and stability, the takeover organization and its personnel shall not do anything that harms the interests of financial institutions and others; If the takeover organization fails to exercise its functions and powers when taking over a financial institution, causing unnecessary losses to the financial institution or depositors, it shall bear corresponding legal responsibilities.

The fourth is about merger and acquisition legislation. In terms of M&A system, there is no special legislation on M&A bank in China at present, and other legal provisions on M&A bank are also relatively lacking. As mentioned above, the division and merger of commercial banks are governed by the provisions of the Company Law, and the merger and acquisition of commercial banks is different from the merger and acquisition of general companies and enterprises. One of the core requirements for commercial banks after M&A is to save banks, assume bank debts, protect depositors' interests, and maintain the stability and development of bank order, which involves a wide range, is comprehensive and has high policy sensitivity, and must strictly limit the qualifications of acquirers. It is necessary for China to formulate a special law on mergers and acquisitions of financial institutions, clearly stipulate the qualifications, rights and obligations of the subjects of mergers and acquisitions, the standards and methods of mergers and acquisitions, and the financial assistance to the acquirers, and establish a perfect bank merger and acquisition system through legislation.

Third, establish a deposit insurance system.

The deposit insurance system refers to a special insurance system in which financial institutions engaged in deposit business pay insurance premiums to statutory special deposit insurance institutions according to the prescribed rates. When the insured financial institutions have a payment crisis or face bankruptcy, the deposit insurance institutions will provide them with financial assistance or directly pay part or all of their deposits to their depositors. It usually constitutes the core legal system of rescuing crisis banks in various countries together with the lender of last resort system. The deposit insurance system helps crisis financial institutions get out of trouble by paying insurance premiums and financial assistance. The lender of last resort system helps financial institutions in trouble out of trouble through liquidity assistance. Together, the two systems constitute a country's protective supervision system and the last line of security defense of a country's financial system.

As far as the historical evolution of the deposit insurance system is concerned, the modern deposit insurance system is the product of directly responding to the banking crisis. According to the statistics of the World Bank, as of 2000, 72 countries around the world have established deposit insurance systems. (Note: Chen. Evolution of Japan's deposit insurance system and its reference significance, International Finance Research, No.5, 2002. ) In China, although it was pointed out in 1993 "the State Council's Decision on Financial System Reform" that a deposit insurance fund should be established, and the National Financial Work Conference of 1997 proposed to establish a deposit insurance system suitable for China's national conditions, this system has not yet been established. Due to the absence of deposit insurance system, the liquidity support for crisis financial institutions in crisis relief is mostly undertaken by the People's Bank of China, which makes the task of the People's Bank of China too heavy. The bigger problem is that the excessive use of the lender of last resort system will lead to the increase of the base money supply and inflation, which will also lead to the conflict between the duties of the People's Bank of China to maintain monetary stability and the duties of the lender of last resort. On the one hand, the People's Bank of China must strictly implement the monetary policy to stabilize the currency value, and must not use the convenience of currency issuers to put in more base money to deal with the financial crisis; On the other hand, in order to resolve the financial crisis and ensure the security and stability of the financial system, the People's Bank of China has to perform the role of lender of last resort and use the base currency under the condition of a single rescue measure. On the protection of depositors, from the practice of dealing with crisis financial institutions in China in recent years, China has always protected the interests of depositors, which is equivalent to providing depositors with a hidden deposit insurance system, which is essentially a national credit guarantee. However, due to the lack of tangible insurance funds and clear "rules of the game", implicit deposit insurance system is arbitrary and vague. Therefore, when a financial institution has problems, the public has a strong suspicion and even the motivation to participate in the bank run, which is illustrated by the large-scale bank runs in some places in China. Therefore, it is urgent for our country to establish a clear deposit insurance system, and deposit insurance institutions should share certain rescue responsibilities to eliminate public panic and prevent deposits from running.

With regard to the construction of deposit insurance system, the author thinks that China should formulate the Deposit Insurance Law, and design and standardize the establishment and functions of deposit insurance institutions, insurance methods, insurance institutions' scope, insurance objects, insurance fund raising and insurance rate verification, deposit insurance limits, insurance claims and other contents, so as to construct the deposit insurance system in the form of legislation. At present, only some suggestions are made on several major issues.

(1) About establishing a deposit insurance system. There are basically two deposit insurance systems abroad. One is centralized system, that is, all financial institutions in China have only one single and highly centralized deposit insurance institution, which is adopted by most countries at present; One is the decentralized system, which provides different insurance arrangements for different types of financial institutions. The author believes that China should adopt a centralized system, that is, establish a unified national deposit insurance institution, so that the right of deposit insurance is centralized in the central government, covering the whole country, and the system, organization and operation are unified throughout the country. Centralized system is conducive to the concentration of insurance forces, so that insurance institutions can maintain strong strength to deal with banking crises and stabilize social confidence in banks.

(2) The choice of organizational form of deposit insurance system. According to the different ways of investment, the organizational forms of deposit insurance systems in various countries can be divided into three types: one is to set up a public deposit insurance institution funded by the government, which is called the official model; Second, the government and banking institutions jointly funded the establishment of a public-private mixed deposit insurance institution, which belongs to the official banking model; Third, private deposit insurance institutions are set up by banks, which is an unofficial model. As far as international experience is concerned, the degree of government intervention is directly related to the rescue ability of deposit insurance system, because government intervention provides national credit. In the event of a banking crisis, in addition to the deposit insurance fund, the government will also provide support to the deposit insurance fund with the national finance as a guarantee, so the deposit insurance institutions in most countries are official models. As far as China is concerned, if the private deposit insurance institution is established entirely by peer investment, it will affect the rapid and timely handling of the crisis because of the lack of compulsion; In addition, China's financial funds are tight, and it is difficult to rely entirely on the government to establish it. Therefore, a better choice is to set up a national deposit insurance institution jointly funded by the government and banking institutions. Institutions should implement the first-class legal person system and be characterized as non-profit and professional policy insurance institutions.

(3) About the scope of insurance institutions and the setting of insurance methods. In terms of insurance institutions, China's legislation should define the scope of insurance institutions as all financial institutions that absorb deposits in China, including the four major state-owned commercial banks, national and regional commercial banks, urban-rural cooperative banks, urban-rural credit cooperatives, wholly foreign-owned banks and Sino-foreign joint venture banks that operate RMB business in China. There is a view that the four state-owned commercial banks of industry, agriculture, China and construction are backed by national credit, and there is no possibility of bank run or bankruptcy at all, so there is no need to force them to participate in deposit insurance. (Note: Zhang Jing et al.: On the establishment of China's deposit insurance system from international experience, Economic Review No.3, 1999. The author believes that, first of all, the design principle of deposit insurance system is to help financial institutions in trouble by accumulating funds of financial institutions that have not experienced serious financial risks or runs. Its operating mechanism is "robbing the poor to help the poor", which embodies the efforts of financial peers to take risks and resist the crisis. Its essence is to share and compensate the risks faced by individual banks in the whole banking industry through deposit insurance institutions, so as to achieve the purpose of maintaining the security of the whole banking system. Secondly, although "too big to fail" is also the principle we follow, it does not mean that big banks do not need financial assistance. The close relationship between banks makes it possible for the four major commercial banks to be dragged down by the crisis of some small and medium-sized banks. Thirdly, the coverage of deposit insurance is too narrow, which is not conducive to maintaining a strong deposit insurance fund. Therefore, the four major state-owned commercial banks should be included in the deposit insurance system. There are two main ways to participate in deposit insurance: compulsory and voluntary. From the experience of foreign deposit insurance system, voluntary insurance can easily lead to adverse selection and moral hazard problems, that is, those banks that prefer risks and thus have greater risks are more willing to take out insurance, while large banks with lower risks are often unwilling to take out insurance. Finally, the deposit insurance system protects some financial institutions with the greatest risks, and these institutions believe that risks can be transferred after insurance, which will increase asset risks and thus affect the stability of the entire banking system. In order to avoid bank run and systemic crisis, deposit insurance must be compulsory. Therefore, China should also establish a compulsory insurance mode in legislation.