Strengthening Financial Regulation Is A Global Trend Of Leverage, First Of All, A Stable Lever.

As the financial leverage has achieved initial success, the public policy departments in recent years have indicated that they have shifted from lowering leverage to stabilizing leverage, from regulatory competition to regulatory coordination.

The national financial work conference will be held soon, and will set the tone for the next five years.

What important signals will the conference convey? How will the future financial regulation evolve? What will be the impact on the economy and large class assets? Strengthening financial regulation is a global trend.

After 08 years of financial crisis, the major developed economies have made great efforts to eliminate the long-standing disadvantages of financial regulation, and try to avoid regulatory vacuum, from deregulation to strict supervision to achieve financial stability.

1) the United States wide currency + strict supervision, the implementation of the Volcker rule.

After the financial crisis, the United States strengthened macro prudence and micro prudence. In the period of financial deleveraging, the coordination of monetary policy and regulatory policy is worth learning. In the 2009-2014 years, the Federal Reserve has implemented zero interest rates and QE for a long time, but it has upgraded the regulation of real estate and commercial banks, implemented the Volcker method and controlled the leverage ratio. Therefore, financial leverage is more effective, the real estate financial bubble has not been overexpanded, the balance sheet of the private sector has been repaired, and the economy has entered a sustainable recovery track.

The core of Volcker's rule is to prohibit banks from engaging in proprietary investment business, which can effectively limit the scale and scope of banking business, reduce systemic risks of banks, and prevent the moral hazard of "big but not falling down" from happening again.

2)

Strengthen supervision and coordination.

From the two levels of macro and micro prudential supervision, the pan European financial supervision system has been established.

3) Britain's "Shuangfeng regulation".

The United Kingdom revoked the original financial supervision bureau which was responsible for financial supervision and divided it into two. It established the Prudential Supervision Bureau and the financial behavior supervision bureau, and implemented the "Shuangfeng supervision". It reconstructed the relationship between prudential supervision and behavior regulation, and strengthened the protection of financial consumers.

There are deficiencies in China's current financial supervision system, including: 1) the contradiction between separate supervision and mixed operation is outstanding.

Under the separate supervision, the regulatory departments are responsible for their respective areas. However, with the development of mixed financial industry, any single regulatory body can not fully cover the business of the regulatory agencies and implement effective supervision.

2) hidden dangers of different regulatory standards.

The regulatory standards of various regulatory departments are not uniform. Taking the information management industry as an example, 2012 is the starting point for the explosive growth of the big information management industry. The securities management and fund subsidiaries are not subject to net capital constraints, and are in an advantageous position in the competition with the trust companies.

3) regulatory arbitrage causes risk inflation and out of control.

Due to the disunity of regulatory standards, regulatory arbitrage has become the norm.

More prominent is that in order to evade regulation, banks have pferred large quantities of business to the off balance sheet with the cooperation of securities brokers, fund subsidiaries, trusts and so on, so as to carry out regulatory arbitrage and bring about the risk of financial risk inflation and runaway.

4) regulatory competition and lack of coordination mechanism.

The financial regulatory authorities first opened up the business innovation and development of the financial institutions, and all kinds of innovations emerged one after another.

In December 4, 2008, the guidelines for business cooperation between banks and trust companies were issued. In October 2012, the "two rules of one law" made a milestone relaxation in the management of securities business.

Subsequently, competition to tighten the supervision of its financial institutions, resulting in the April bond market turmoil.

In April 2017, 334 special inspections were carried out. In 2017 of 2017, the implementation plan of supervision and classification of trust business was issued, and the comprehensive prohibition channel business was first introduced in May 2017.

Looking forward to the national financial work conference, we believe that the following signals will be delivered: 1) to meet the new era of supervision and coordination, a higher level of regulatory coordination mechanism is expected to be established.

We should strengthen supervision and coordination and prevent regulatory arbitrage. We should carry out in line with uniform standards, eliminate arbitrage, pass through supervision, break up rigid exchanges, gradually reform and standardize statistics. We should promote the coordinated reform of financial reform and substantive reform, combine macro Prudential and micro prudential supervision, enhance the efficiency of financial and financial efficiency, and effectively serve the real economy.

2) separate supervision to functional supervision.

Functional regulation is a radical solution. On the one hand, functional regulation can eliminate the "regulatory vacuum" brought about by financial innovation, and on the other hand, it can reduce the "regulatory arbitrage" caused by the disunity of regulatory standards.

Functional supervision is a financial supervision mode that divides the regulatory objects according to the nature of business operations.

3) continue to strengthen macro prudential supervision and strengthen the central bank.

According to Caixin and other media reports, the financial coordination committee will be set up on the basis of "one line and three meetings", which is located in the central bank, so as to effectively play the leading role of the central bank in macro Prudential Management.

Since 2016, China has upgraded the differential reserve dynamic adjustment mechanism to the macro Prudential evaluation system (MPA), and guided the implementation of financial institutions' behavior in a multi-dimensional way.

"Macro Prudential policy" two pillar regulatory framework.

4) unified regulatory standards.

Unified regulatory standards are the trend of the times and the precondition for eliminating regulatory arbitrage.

In the information management industry, the unified supervision standard of information management is conducive to mastering the real risk portfolio and asset allocation of information management institutions, enhancing the execution and supervision efficiency of regulatory policies, and preventing regulatory arbitrage.

5) eliminate regulatory arbitrage.

We should further strengthen communication and coordination among different regulatory departments, promote the harmonization of capital regulatory standards in different sectors of the same industry, promote fair competition in the market, and prevent regulatory arbitrage, mainly by eliminating the two categories of circumvention of regulatory index arbitrage and circumvention of regulatory policies and arbitrage.

6) from lowering leverage to stabilizing leverage.

Premier Li Keqiang recently emphasized "stable financial operation". The financial times read that "financial stability is the stability of financial leverage".

Yi Gang recently said that "leveraging first is stable leverage", and the growth rate of leverage has been reduced.

In the first half of 17 years, financial leverage has achieved some success. In June, the M2 growth rate dropped by 10% to 9.4%.

After 08 years of financial crisis, the inconsistency between the original financial regulatory system and the financial system showed that the financial regulatory system did not keep up with the wave of liberalization, integration and innovation of the financial system. In view of the shortcomings of the market forces and rules emerging from the crisis, too much emphasis on efficiency and neglect of the defects of fair, micro and macro prudential supervision, the major developed economies focused on eliminating the long-standing disadvantages of financial supervision and made a great reform, trying to avoid regulatory vacuum, from relaxing supervision to strict supervision and achieving financial stability.

After the crisis, countries changed the view that the central bank's monetary policy and financial regulation were not in harmony. The central bank's role in macro prudential supervision after the crisis and the formulation of monetary policy functions can be complemented and perfected. Based on this idea, the global financial regulatory system has undergone major reforms, and all countries have strengthened the central bank's leading role in financial regulation.

After the crisis, a number of international organizations have made contributions in strengthening global macro prudential supervision. BIS has put forward systematic important capital additions and regulatory requirements for counter cyclical capital. In April 2009, the cost FSB was designed to strengthen global Prudential Financial Regulation.

At the G20 summit in 2010, FSB formally put forward the regulatory framework of SIFI and established the keynote of global regulatory reform, that is, taking systemically important financial institutions as the key regulatory targets and taking macro Prudential and micro prudential supervision measures as the means to achieve the ultimate goal of improving the security and stability of the financial system.

In this process, the United States and Europe from the financial leverage to finance plus leverage, the United States after the subprime crisis after 2008-2011 years of financial leverage, Europe after the sovereign debt crisis after 2011-2016 years of financial leverage, has entered the plus leverage cycle.

After the financial crisis, the United States strengthened macro prudence and micro prudence.

The United States has promulgated the financial regulatory reform bill and the Dodd Frank Wall Street reform and Consumer Protection Act, to strengthen macro prudence and micro prudence, adjust the regulatory system, and emphasize consumer rights and interests protection.

The reform of the regulatory system has the following main points: first, give the Federal Reserve greater supervision function.

In addition to retaining the traditional lender of last resort function of the Federal Reserve, it also gives full supervision to important banking, securities, insurance, financial holding companies and financial infrastructure. Second, establish a financial stability supervision committee to identify and prevent systemic risks.

By acquiring data and information from financial institutions, it identifies systemically important institutions and factors that threaten the stability of financial systems and regulatory loopholes, and adjusts recommendations to regulators. Third, the original regulatory bodies are restructured.

The new bill reorganized existing regulators, and financial regulators were integrated into the four Federal Reserve, Federal Deposit Insurance Company, monetary oversight agency and national credit cooperatives authority.

The United States in the financial deleveraging period, the coordination of monetary policy and regulatory policy is worth learning. In the past 2009-2014 years, the Federal Reserve has implemented zero interest rates and QE for a long time, but it has upgraded the regulation of real estate and commercial banks, implemented the Volcker rule and controlled the leverage ratio. Therefore, financial deleveraging is more effective.

To be restored, the economy enters a sustainable recovery track.

The core of Volcker's rule is to prohibit banks from engaging in proprietary business and banning banks from owning, investing or launching hedge funds and private equity funds.

The Volcker rule is considered to be effective in limiting the scale and scope of banking business, reducing systemic risks in banks, and preventing the moral hazard of "too big to fail" to happen again.

Its contents include the following three points: "deleveraging" in the financial market.

The first is to limit the size of commercial banks.

It is stipulated that the share of a single financial institution in the savings deposit market should not exceed 10%, which limits the ability of banks to borrow too much to invest.

The two is to restrict banks from using their own capital to engage in proprietary trading.

The three is to prohibit banks from owning or subsidized investment in private equity and hedge funds, so that banks can draw a clear line between traditional lending businesses and high-risk investment activities such as high leverage, hedging and private placement.

08 years of financial crisis showed that there were many problems in the EU's regulatory system, including loose supervision framework at the EU level, inadequate response to crisis management, and poor implementation of EU law in member countries.

After the crisis, the EU's financial regulatory framework has undergone major changes.

In June 2009, the European Union Council adopted the EU financial regulatory system reform plan, and proposed two new regulatory bodies: the European Commission on systemic risk supervision (ESRC), which is responsible for macro prudential supervision, and the European financial supervisory system (ESFS), which is responsible for micro prudential supervision, and jointly implemented the financial supervision of the European Union. With the promulgation of the Dodd Frank Wall Street reform and Consumer Protection Act, the European Parliament passed the pan European financial supervision reform act in September 2010. The bill broke the regulatory framework of each member's autonomy among Europe and the EU, and established the pan European financial supervision system from two levels of macro and micro prudential supervision.

China's current "one line, three meetings" financial regulatory system, in general, is implemented by separate supervision system. Under separate supervision, the regulatory departments are responsible for their respective areas of management, mainly through the operation of licences. However, with the development of financial institutions' mixed operations and business intersections, the system of separate supervision and management is increasingly not suited to the new changes.

Because of the intensification of the mixed financial industry, no single regulatory body can fully cover the scope of business of the regulated institutions, and the demand for China's financial regulatory system is rising.

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