A finance professor from China’s leading university says that macroeconomic and monetary policy is best served by the the regulation of securities and insurance companies by independent agencies, as well as closer coordination between the central bank and banking regulators.
Financial regulation in China is currently conducted by a quartet of government bodies consisting of the People’s Bank of China, which is China’s central bank; the China Banking Regulatory Commission, the China Insurance Regulatory Commission and the China Securities Regulatory Commission.
Potential reforms to China’s financial regulatory system have been much discussed of late, with some advocating the merger of the banking regulator with the central bank, and others pushing for the establishment of a single super-regulator in the form of the central bank with the other agencies serving as subordinate departments.
One of China’s leading financial scholars has lent her voice to the debate, coming out in support of more diffuse and independent regulation of the finance sector.
Speaking to reporters at the Tsinghua Wudaokou Global Finance Forum Wu Xiaoling (吴晓灵), head of the Tsinghua University Wudaokou School of Finance, said that she was an advocate for the management of foreign exchange by an independent, specialist department that would be a part of the Chinese central bank.
“I personally believe that the foreign exchange department model is the best model, while insurance and securities (regulation) should be conducted independently and separately.”
Wu said that regulatory agencies should be established and operate in order to address the distinct core functions of various financial institutions, with banks serving as money creators, securities firms serving as credit intermediaries, insurance companies making supplementary credit payments, and trust companies serving as proxy managers of assets.
Banks should be subject to especially strict and prudent regulation, because they create credit money during the lending process, and their activities involve the country’s myriad households.
With respect to securities companies, Wu said regulators should focus on ensuring that they are responsible for providing honest and accurate disclosures, given that their job is to provide open, transparent and complete information on enterprises seeking funds to investors.
In Wu’s estimation insurance companies should have their own independent regulator, while asset management should fall under the remit of securities regulation.
With respect to the banking sector, Wu said that in countries with strong rule of law there should be an appropriate distinction between banking regulators and the central bank.
Given the overlapping role that the central bank and commercial banks play in money creation and the importance of appropriate control of the money supply to macroeconomic management, however, Wu said that there are definite benefits to eb had from closer coordination between the central bank and banking regulators.