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Function Separation from the People's Bank of China: Discussions on Problems and Countermeasures

The establishment of China Banking Regulatory Commission (CBRC) indicates the separation of monetary policy and banking regulation. This separation is advantageous to enhance the independence of central bank, strengthen the banking regulati
Submitted On: 04-01-2010 | Views:	Article Tools:

The establishment of China Banking Regulatory Commission (CBRC) indicates the separation of monetary policy and banking regulation. This separation is advantageous to enhance the independence of central bank, strengthen the banking regulation on the specialization of the idea and the method. At the same time, we realize that there are some operation problems after separation, thus, it is important to promote the coordination between monetary policy and banking regulation. In order to guarantee the mutually independence and effective coordination, this article attempts to analyze these problems and discuss some solutions.Starting with the unification of monetary policy and banking regulation, combining with the practice of divided operating and supervision, the paper raises the subject of the separation of monetary policy and banking regulation, summarizes achievements after separation and points out the problems. It focuses on three problems existed, then demonstrates and ends with conclusions and measures.It is undoubted that the macro-target is identical for the two institutions, however, we should pay attention to three problems. First, the function overlapping has led to a high overlapping regulatory cost. Second, lacking in the independence, the banking regulatory institution iscapturedby local authority, which leading to the damage to monetary policy. Third, as the last lender resort and the insurer of the depositors, the central bank is easy lobbied by banks, which exaggerate their difficulties in fluid. As a result, the central bank often gives the excessive currency support to those banks, conflicting with the regulatory goal of regulatory institution. In order to solve these three coordinated problems, according to the fundamental realities, we should construct the system of sharing of banking regulatory information, strengthen the independence of CBRC, gradually separate the deposit insurance function from the People's Bank, and discretely impel the dominance insurance system in our country.In conclusion, solving the coordinated problems between the People's Bank and CBRC is very important, although complicated and controversial. We have discussed some measures in this paper, and we expect to further research in the future.

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