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¡ Emortgage ¡ House e Flexiblemorgage esearcho House msearchn Emortgage Your f Your a Your Your fsearchs House t Szh Flexiblemorgage y Flexiblemorgage t Emortgage m Szh c House rsearchisearchs Emortgage tsearche Flexiblemorgage p House oms Emortgage Szh h House tt Forex esearchp Forex r Mortgage osearchisearcha Flexiblemorgage Forex i Szh a Mortgage cial Flexiblemorgage re House o Forex t Forex searchur Flexiblemorgage e Your t Mortgage y en Your rsearchtesearch Emortgage ysearchth a Forex k House c House usearchd Szh bsearch s Your dsearcheesearch Flexiblemorgage osearchesearchef House i House i Emortgage nt Szh y Mortgage t searcheea Emortgage e a Your ery Szh wasearchn House ng Flexiblemorgage y Szh tem Your u Your i Mortgage g Emortgage searcho Your searchx Forex mp Forex e, psearche Your Forex rou House searchnsearchlsearchs Emortgage s to det House ctsearchboad Mortgage t Your en Forex s Emortgage a House f Your cisearchgsearchthe insearchnsearchia Szh se Szh tsearchr House m Forex lementing an effective offsite system in China requires overcoming some obvious, though surmountable, impediments. Just the vastness of our nation presents a major obstacle. Also, in China, the headquarters of the state-owned banks have traditionally delegated control to the local branches. The strong tradition of local autonomy has impeded comprehensive consolidated risk management systems, preparing timely consolidated financial statements and generating comprehensive supervisory reports. ¡¡

¡¡¡¡Chinese banks are hindered by the information collection and dissemination systems for timely internal risk control analysis. Chinese banks are aware of the need to modernize the banking technology, including setting up a modern information system with real-time risk monitoring. Although the impetus for developing internal risk management can come from prescribed regulatory reporting requirements, the end result can be a banking system with more sophisticated risk management tools. ¡¡

¡¡¡¡Up-to-date, after the operation testing in 2006, the national off-site surveillance information system for China¡¯s banking industry officially started operating, which is a great reform in the history of China¡¯s supervisory methods . ¡¡

¡¡¡¡3. Credit Information System ¡¡

¡¡¡¡In order to be successful, a Credit Information Bureau should adhere to several principles. First, clear and transparent rules governing the management of the Bureau, collection of information and the procedures for sharing it with the banking community. Second, the bureau should cooperate with the banking industry and address explicitly up-front the banking industry¡¯s concerns. Enhancing the transparency of credit exposure (including contingent liabilities), collateral and delinquencies of borrowers through a Bureau is highly desirable in China. ¡¡

¡¡¡¡When a banking institution is experiencing or likely to experience a credit crisis, thereby seriously jeopardizing the interests of depositors and other customers, the banking regulatory authority under the State Council may take over the banking institution or facilitate a restructuring. The take-over or restructuring shall be carried out in accordance with applicable laws and administrative regulations.¡¡

¡¡¡¡4. Isolation from non-bank activity risks¡¡

¡¡¡¡The US authorities have adopted the holding company framework as a solution to non-bank financial institutions (NBFIs) activities. The governing principle is that non-bank activities and affiliations should not take place through subsidiaries of banks. The U.S. regulatory framework requires that organizations that conduct financial business should organize in a holding company form where the bank and the other activities are subsidiaries of the holding company. The holding company is subject to capital adequacy and other prudential norms. Profits and losses of the business lines accrue to the holding company and thus do not directly endanger the bank, nor the deposit insurance system. One major advantage is that any losses in an affiliate do not flow to the bank, as in the case of direct subsidiaries of banks, where the risk is not isolated and can be transmitted to the parent. ¡¡

¡¡¡¡Banks, in the presence of explicit deposit insurance such as in the US, or implicit deposit insurance such as in China, have an economic advantage in the form of lower funding costs. This advantage is not directly available to the non-depository affiliates. Such a situation undermines the competitive playing field between bank subsidiaries and independent firms engaging in the same business, defying the purpose of competition in financial services. Therefore, a policy objective of creating a level playing field, while at the same time preserving the integrity of the deposit insurance system, leads to segregation, regulation and supervision of non-bank activity. No matter what mode China elects to isolate banks from non-bank activity risks, the challenge for Chinese policy-makers will anticipate the inevitable and fast-paced transformation now under way in financial services and to update he regulatory and supervisory framework to respond to innovative markets. ¡¡

¡¡¡¡5. Transparency ¡¡

¡¡¡¡Transparency is another important component of the infrastructure that permits market mechanisms to function fairly and efficiently. Customers can make informed decisions, utilizing publicly disseminated information. Improved transparency in market options will help attract international investor interest. The common themes of improving oversight and market transparency are extremely pertinent, but they are often overlooked and neglected in the supervisory practices adopted in China. Taking a global perspective, hope it will help perfect and effective China¡¯s regulatory and supervisory initiatives. ¡¡

¡¡¡¡6. Consumer protection¡¡

¡¡¡¡ In China, the shortage finance phenomena mainly embody in three parts: first, the existing banks would not like to invest and finance in small-scale counties and countryside. Second, the existing banks have very high doorsill and complicated procedures. Third, the rural cooperative financial organizations have strong characteristic of administrative financial organizations, bad assets increase and severely deficit. At this time, legislators should regulate and modulate in time, to protect consumers, especially the disadvantages¡¯ rights. It can be better represented by the U.S. Regulation B , The Equal Credit Opportunity Act of 1975, and Anti-redlining Legislation. At first, financial institutions should be honest and let consumers know all the information and risks. China should also learn the regulations from the U.S. 1968 Truth-in-Lending Act and Regulation Z . ¡¡

¡¡¡¡ Moreover, the credit record system, rating system and report are also very advanced compared to China, the related regulations should be considered to establish in order to protect the consumers and the disadvantages. U.S. The Fair Credit Reporting Act of 1970 and The Right to Financial Privacy Act of 1978 are both of great value for reference. To sum up, how to protect the consumers and to establish the corresponding regulations is a big issue for China¡¯s banking supervision. ¡¡

¡¡¡¡7. Cooperation among different supervisory departments¡¡

¡¡¡¡ From China¡¯s supervision practice, banking supervisory department, market surveillance and internal auditing haven¡¯t realized effective cooperation. People¡¯s bank, Board of supervisors, auditing administration and internal auditing department in banks all conduct on-site examination to commercial banks, but the objects to be examined and schedules are not communicated beforehand, even the same for the results of examination and the solutions. The role of market supervision and intermediary agencies is not enough. Except the listed banks, the disclosure of information of non-listed banks is not enough, sometimes even false. External intermediary organs such as external auditing firms own a lot of professional information and resources, the supervisory department hasn¡¯t noticed this would be a good method to increase the efficiency of supervision. ¡¡

¡¡¡¡ In this respect, communication of information should be smooth among internal and external supervisory departments, realizing information share, such as to establish joint conference, to report examination schedules, conditions and results and to adopt uniform data indicator and uniform information bank. ¡¡

¡¡¡¡8. To improve the market withdrawal monitoring system¡¡

¡¡¡¡The law on commercial banks builds up the bankruptcy for banks in principle, but there are still so many issues not involved. Future legislation should improve the bankruptcy proceedings of the procedures. The law should require banks to apply for bankruptcy rather than by the banks to directly apply to the court. The insolvency of banks should be taken careful and strict review. At the same time, China should build a corresponding reconciliation procedure and period calculated. Bank debt settlement, debt restructuring, effective asset take-over and trusteeship also requires standardization. ¡¡

¡¡¡¡Chinese foreign bank supervision law system after its entry into WTO¡¡

¡¡¡¡Globalization posed challenges for the capacity of the region¡¯s supervisory apparatus to oversee the international affiliates of domestic financial institutions. The Basel Committee made initial progress in the area of home/ host reciprocal supervision of banking entities in several earlier documents, starting in 1975 and most recently in 1996. The gradual liberalization of the financial system in China is leading banks to establish an international presence. Already, several Chinese banks have established international branches. The regulatory authorities in China might be advised to consider the Basel Committee¡¯s approach and guidance on the subject, including harmonization of capital standards and initiatives to improve cross-sector supervision. Similarly, China might benefit from international efforts to harmonize national rules that are under way, such as Core Principles developed under the auspices of the Basel Committee. ¡¡

¡¡¡¡When China entered into WTO, promises had been made to open up its banking industry fully by the end of 2006. It has been a big challenge for China to prudently supervise foreign banks coming forth, based on the basic principles of WTO. For the purpose of meeting the needs of opening up to the outside world and economic development, strengthening and improving supervision and regulation over foreign-funded banks, and promoting safe and sound operation of banking industry, Regulations of the PRC on Administration of Foreign-funded Banks was enacted by CBRC in 2006. In its chapter IV, supervision and regulation has been particularly stipulated. Using for reference from common international practice, BBRC has distinguished its treatment of wholly foreign-funded bank or joint venture bank from the branch of foreign-funded bank. The former ones can engage in foreign exchange and RMB businesses, without examination and approval, whereas branches have to be approved individually and engage in limited retails business. Therefore, the regulations are aiming at leading foreign banks to register sub-bank domestically in China. ¡¡

¡¡¡¡National Treatment of WTO core principle requires China to treat foreign firms the same as domestic firms are treated in the Chinese market, which is a basic requirement of a global market. But meanwhile, due to China¡¯s status as emerging financial market, it is necessary and feasible for China to implement proper protection through prudent supervisory regulation according to international practice. ¡¡

¡¡¡¡The supervisory regulations for accommodating to globalization of banks are lacking. The law of PRC on Commercial Banks is standing for domestic banks, thus the effective supervision on foreign banks may hardly realize. An overview of the existing laws and regulations , the shortcomings are: (1) the normative authority of the document is not high and (2) the monitoring content and the method for monitoring are too principle to operate. (3) the internal requirements for the foreign institutions are not clear. ¡¡

¡¡¡¡The United States in 1991 "to strengthen the supervision of foreign banks" and 1996 Regulation K, not only required foreign banks must accept the annual inspection by the Fed, but also establish regulations for on-site and off-site inspection system, especially on-site inspection system is particularly perfect. They are very worthy learning from for China.¡¡

¡¡¡¡Globalization is a common challenge. It should be channeled or managed cooperatively. As a new member of the WTO and the global trade leadership community, China has the chance to shape globalization, not merely to be shaped by it.¡¡

¡¡¡¡V. Basel Agreement and New Basel Capital Agreement¡¡

¡¡¡¡1. Evolvement of Basel Committee on Banking Supervision and New Basel Capital Agreement and its impact on international banking¡¡

¡¡¡¡The Basel Committee on Banking Supervision is an institution created by the central bank Governors of the G-10 nations. It was created in 1974 and meets regularly four times a year. The Basel Committee formulates broad supervisory standards and guidelines and recommends statements of best practice in banking supervision in the expectation that member authorities and other nation's authorities will take steps to implement them through their own national systems, whether in statutory form or otherwise.¡¡

¡¡¡¡Its objective is to enhance understanding of key supervisory issues and improve the quality of banking supervision worldwide. It seeks to do so by exchanging information on national supervisory issues, approaches and techniques, with a view to promoting common understanding. At times, the Committee uses this common understanding to develop guidelines and supervisory standards in areas where they are considered desirable. In this regard, the Committee is best known for its international standards on capital adequacy; the Core Principles for Effective Banking Supervision; and the Concordat on cross-border banking supervision.¡¡

¡¡¡¡The Basel II Framework describes a more comprehensive measure and minimum standard for capital adequacy that national supervisory authorities are now working to implement through domestic rule-making and adoption procedures. It seeks to improve on the existing rules by aligning regulatory capital requirements more closely to the underlying risks that banks face. In addition, it is intended to promote a more forward-looking approach to capital supervision, one that encourages banks to identify the risks they may face, and to develop or improve their ability to manage those risks.¡¡

¡¡¡¡Basel II uses a "three pillars" concept - (1) minimum capital requirements, (2) supervisory review and (3) market discipline - to promote greater stability in the financial system. The Basel I accord dealt with only parts of each of these pillars. For example: of the key pillar one risk, credit risk, was dealt with in a simple manner and market risk was an afterthought. Operational risk was not dealt with at all. ¡¡

¡¡¡¡The first pillar deals with maintenance of regulatory capital calculated for three major components of risk that a bank faces: Credit Risk, Operational Risk and Market Risk. The second pillar deals with the regulatory response to the first pillar, giving regulators much improved 'tools' over those available to them under Basel I. It also provides a framework for dealing with all the other risks a bank may face, such as reputation risk, liquidity risk and legal risk, which the accord combines under the title of residual risk. The third pillar greatly increases the disclosures that the bank must make. This is designed to allow the market to have a better picture of the overall risk position of the bank and to allow the counterparties of the bank to price and deal appropriately. It can be illuminated by the chart below. ¡¡

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