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Financial Insiders Debate Over Regulation and Innovation
Aug 22,2011 13:14CST
industry news
Enhancing financial regulation has been a common view between govenrments ever since crisis burst out in 2008, but debates over implementation details have kept going.

BEIJING, Aug. 21 (Xinhua) -- Enhancing financial regulation has been a common view between govenrments ever since crisis burst out in 2008, but debates over implementation details have kept going, especially when recent debt crisis has given rise to double-dip recession danger.

Bankers and financial experts have agreed that the global banking system needs prudent and strict regulation, but how to strike a balance between regulation and financial innovation would be an important issue yet to be solved..

Dai Peng, an official with Export-import Bank of China, one of the country's policy banks, said at Saturday's fifth Annual Bankers Forum that increased regulation and financial innovation should be paid with equal attention in the reform of international financial reform.

"The last round of financial crisis is the consequence of ultra market liberalism of the western countries, which need strict regulation badly," he said. But for emerging economies with underdeveloped financial markets, innovation should be encouraged to ensure a healthy market.

The G20 leaders have approved to the Basel III framework at the end of last year, the new global standards for banking which requires higher capital adequacy ratios for commercial banks.

There should not be a universal standard for all the banks, which could discourage the economic development in emerging markets and in turn hurt global financial stability, he said.

China should work out its own regulating system that better boosts the development of the country's industry, instead of following the regulation standards of the western countries, he added.

But according to Fan Gang, a former advisor for the People's Bank of China, the country's central bank, emerging economies should be even more prudent than developed ones, as they are more vulnerable to external risks.

More hot money has flowed to emerging economies and brought severe inflation ever since the United States conducted near-zero interest rates and poured excessive liquidity into the market, said Fan.

When crisis comes, developing countries are less capable of self-adjusting, which requires more prudent spirit to protect the economy's operation, he said.

Also, Xu Xiaonian, a professor at China Europe International Business School and also a well-known economist, said it is actually the government that needs the most supervision, especially when the Federal Reserves has created the 2008 financial crisis and the recent debt crisis with over-liquidity in the market and near-zero interest rates.

Xu pointed out that while conducting financial regulation, there should be a clear boundary between the role of government and that of the market.

"The government should be responsible for establishing a framework and setting up standards, but not interfering market operation," he said at the forum

Xu said the problem with China's system is that there are too many departments that regulate only one market, which brings more complication and less efficiency.

"Regulators are after riskless operation, but being riskless equals to profitless," he said.

"You have to let market competitors to make mistakes and learn," said Hong Qi, Managing Director and President of the China Minsheng Bank.

Regulators should rather focus on enterprises with flaws in management and equity structures, said Xu.

According to Dai, a stable financial market does not equal to being totally out of risk but a flexible market that would be less hurt by crisis. Regulators could pay more attention on boosting financial institutions' profiting abilities to fight risks.






financial debate;regulation and innovation

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