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At the time the Community Reinvestment Act (CRA) was passed in 1977, the banking industry and community groups were concerned about “redlining” or the refusal of a bank to lend money to low-income communities, while, at the same time, accepting deposits from those areas. CRA requires that financial institutions help meet the credit needs of their entire communities, including low-and moderate-income areas. Examiners review the bank’s lending in its community, such as the number and amount of loans made to low-, middle- and upper-income borrowers. CRA provides the bank flexibility in meeting requirements, such as allowing a bank to define its community and how to determine the credit needs of the low-and middle-income neighborhoods. Rebuilding and revitalizing communities through sound lending and good business judgment benefits both communities and banks.
IV. Banking Supervision in China
Regulations and execution of Chinese banking supervision
China’s entry into WTO has put forward a higher requirement to Chinese banking supervisory regulations. How to perfect the banking regulation law is the first task of the China Banking Regulatory Commission (CBRC). Standardized and systemic legislation should be paid more intension to perfect the banking supervisory regulations system, improve the supervisory skills and the overall quality of personnel in order to adapt the development of new situation.
The year of 1995 is known as the year of financial lawmaking. China successively passed The Law on People’s Bank of China and The Law of the People’s Republic of China on Commercial Banks , indicating China’s banking supervisory law system initially formed. They become the core of China’s banking supervisory system. In addition, except them, the current system still comprises the administrative regulations issued by State Council and bank supervisory regulations issued by the People’s Bank of China . From the form’s point of view, it seems perfect for China’s banking supervisory law system. However, in the practice, many circumstances exist like overlapping of regulations, lacking in harmony and incompatibility.
After China’s entry into WTO, foreign banks and financial institutions come into China constantly, which will not only change China’s current financial institutions, but also affect the actual financial functional regulations. The international development of banking supervisory regulations will be the necessary option for high-quality and effective supervisory framework. The regulations should be revised to meet the new requirements.
On Aril 28th 2003, China Banking Regulatory Commission (CBRC) was formally established. The establishment of CBRC is a milestone of China’s financial system reform. The main functions of CBRC are as follows: 1) Formulate supervisory rules and regulations governing the banking institutions; 2)Authorize the establishment, changes, termination and business scope of the banking institutions; 3) Conduct on-site examination and off-site surveillance of the banking institutions, and take enforcement actions against rule-breaking behaviors; 4) Conduct fit-and-proper tests on the senior managerial personnel of the banking institutions; 5) Compile and publish statistics and reports of the overall banking industry in accordance with relevant regulations 6) Provide proposals on the resolution of problem deposit-taking institutions in consultation with relevant regulatory authorities; 7) Responsible for the administration of the supervisory boards of the major State-owned banking institutions; and Other functions delegated by the State Council.
The supervision of CBRC focuses on: Conduct consolidated supervision to assess, monitor and mitigate the overall risks of each banking institution as a legal entity; Stay focused on risk-based supervision and improvement of supervisory process and methods; Urge banks to put in place and maintain a system of internal controls; Enhance supervisory transparency in line with international standards and practices.
Moreover, for the purposes of improving banking regulation and supervision, standardizing banking supervisory process and procedures, preventing and mitigating financial risks in the banking industry, protecting the interests of depositors and other customers, as well as promoting a safe and sound banking industry in China, the Law of the People’s Republic of China on Banking Regulation and Supervision is enacted.
Current Problems
1. Neglect of market competition
The current situation of Chinese banking supervision still bears the characteristic of strong planned economy, getting adrift from the rule of market competition. Only for instance of “civilian banking industry”, it reflects that the minimum amount of registerd capital required by The Law of the People’s Republic of China on Commercial Banks is too high. The minimum registered capital for setting up a commercial bank is RMB 1 billion yuan, which is 122 times higher than the minimum capital requirement of U.S. national banks; for urban cooperative commercial bank RMB 100 million yuan, and for rural cooperative commercial bank RMB 50 million yuan, which is 6 times higher than the same requirement of U.S. national banks.
Properly increasing the competitors of banking market can solve the problem of “underground finance” in some degree, since those emerging competitors can naturally circulate as well as take in and send out abundant idle funds, which will stimulate the development of banking retail business and increase the equity capital of emerging banks. Moreover, it is far from enough to just lower the entry level, many regulations need to be perfected to maintain the proper competition of banking industry, such as antitrust law, regulations of bank mergers and acquisitions, bank holding companies and bank deposit insurance.
2. The hysteretic construction of supervisory regulations
There are many overlaps, incompatibility and even direct conflicts between bank supervisory rules and regulations themselves and with the Law of People’s Bank of China and the Law of PRC on commercial banks. Gross Settlement Procedures which came into force in 1997 directly copied many regulations of PRC Negotiable Instruments.
The Law of PRC on Commercial Banks and relevant department regulations emphasis excessively on supervision of commercial banks’ business. Most of the rules in Chapter III “protections for the depositors” and Chapter IV “basic rules governing loans and other businesses” are the regulations on the private relationship between banks and clients. This tropism of legislation reflects the fact that legislators try to realize its supervisory objective by strictly regulating private relationships which otherwise shows its administrative intervention on private area.
China is in the process of transition from the planned economy to the market economy system, the current laws, in particular for the regulations before the introduction of "the People''s Bank Law," "Law on Commercial Banks" are necessary for cleanup. Again, the specific regulations of People’s Bank on detailed area are ripe to be systematic. U.S. Federal Reserve Board’s 26 letter serial numbers listed in the management is worth learning from.
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