Cross-border bank systemic risk regulation theory

Author: Tang Lingxiao
Publisher:
Publish Date: 2004-04-01
Features: With China's entry into the WTO, foreign banks followed suit, making the importance of their regulation increasingly urgent and prominent. This book primarily studies cross-border bank regulation from the host country's perspective, providing theoretical foundations and practical references for China to address current challenging issues. Traditional regulatory theories argue that financial regulation stems from bank information asymmetry and negative externalities. Although this theory reveals the root causes of regulation, the author believes its theoretical foundation is too micro. It tends to divert public attention and regulatory efforts toward individual banks, assuming regulators should focus on the risk status of each bank to ensure none of them encounter problems, or else it would be considered a regulatory failure. This, in turn, leads to regulators misallocating their regulatory efforts. Inspired by the regulatory philosophy of the Basel Committee, the author constructs "systemic risk" as the meso-theoretical foundation for regulation, while treating bank information asymmetry, negative externalities, and their interactions as the micro-theoretical foundation for systemic risk. To some extent, this enriches the theoretical basis for regulation and corrects the cognitive biases often inherent in traditional regulatory theories.