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CBRC: Greed at root of global banking woes

By Chen Jialu (China Daily)
Updated: 2009-09-11 10:52

With the world economy still in the shadow of the financial crisis, financial supervision and the security of the financial markets will prove a heated topic at this year's Summer Davos in Dalian.

Liao Min, chief spokesperson of the China Banking Regulatory Commission (CBRC), told China Daily of the lessons that the Chinese banking industry needs to learn from the global financial crisis.

Addressing the fatal flaws that led to the breakdown of the banking system, Liao said: "The banks have a good framework for corporate governance. However, problems come from implementation in practice, for example, some people sitting on the boards of international investment banks and commercial banks lack adequate expertise in market risk and structured products risk management; and the incentive and compensation scheme also needs to review."

Liao also maintained that many of the financial derivative products were too complex, far in excess of the real needs of any economy. The only purpose of these products, he said, was to ensure financial institutions made money, instead of providing any genuine wider economic benefit.

He said: "The largest part of wealth of some nations was accumulated in the financial system, instead of in the real economy. The deep-rooted reason of this financial crisis lies in the avaricious nature of a number of people. That is one of the reasons why we need effective banking regulators."

Believing that the Chinese banking industry is better positioned than most to weather this financial storm, Liao said: "Compared with some Western banking supervision and regulation, we have adopted a very good framework. Our banking philosophy is very straightforward. We aim to ensure that everything is basic, simple and useful.

"We also have the added insurance of having a 'firewall' between the capital markets and the banking system. This is expected to help the Chinese banking industry emerge from the economic downturn relatively unscathed."

Special coverage:  Summer Davos 2009

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Despite the severity of the international situation, Liao said he didn't think the financial crisis would retard the progress of China's financial innovation.

"We always try to strike a balance between risk management and financial innovation. There is no contradiction between innovation and risk management. Whenever we need to more effectively manage a risk, we need to innovate more successfully," he said.

Whilst many feared that extensive lending in the first half of this year would lead to a possible increase of non-performing loans over the next few years, Liao remains optimistic. He said: "In terms of capital adequacy ratio, loan loss provisioning and profitability, we are still in a very good shape."

"Up until now, China's GDP has maintained a relatively stable and rapid growth. I believe the commercial banking institutions will contribute substantially to the sustainable recovery of China's economy."

Starting from the fourth quarter of last year, when the impact of the global financial crisis was first felt in the Chinese economy, the CBRC called on commercial banks to strengthen and better their risk management, continue to support economic growth, and to back those businesses that were fundamental healthy, but temporarily in trouble due to impact of global financial crisis.