The Reason Of Financial Crisis Happened In American Finance Essay

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Date added: 17-06-26


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With the countries developing, people earn and get more and more money, and then they need to keep their money safe in a financial organization, which leads banks becoming. Normally, banks are primarily constitute by financial institutions that were exist some key functions such as accept deposits, take loans, money exchange, long-distance transfer money and others. All of these were appeared in Chinese Song Dynasty that during 960 and 1279. In 1823, Shanxi Banks became so popular, as a first bank in Chinese banks history. Their main functions were transferring large amounts of cash, introducing drafts from one branch to another in China. While, at the end of nineteenth century, 66.7 percentage of Piaohao were existed in most parts of China, which is a kind of bank. In Piaohao, it organised as single partnerships and the owners carried unlimited liability as a nationwide bank. In addition, there were many small native banks becoming during that time period, such as Qianzhuang. In the mid-eighteenth century, the first Qianzhuang likes a bank, which was traced in markets. Most of the Qianzhuang operated like commercial banks, which exchanged bills, managed local money exchange and discounted for the local business community in order to contrast with Piaohao. In Chinese banks history, Qianzhuang played an important role between banks and Chinese merchants; it grew many Chinese expansions in foreign trade. Then in early 1890s, western banks entered China. Li Hongzhang created a first foreign-Chinese joint bank in 1885, the Qing Dynasty. In 1897, Imperial Bank of China opened as a first modern bank for business, which was adopted internal management ways of HSBC and their senior managers were foreigners. While, it changed its English name in 1921, which called Commercial Bank of China. In 1905, the first Chinese central bank (Bank of the Board of Revenue) was established but it changed name to the Great Qing Government Bank after 3 years later. With the Piaohao all disappeared in 1911, Daqing Bank changed their name to Bank of China that still continued exist today. In the late of Qing period, there were three private banks (Xincheng Bank, National Commercial Bank, Ningbo Commercial and Savings Bank) appeared, which were created by private entrepreneurs without funding. And in 1912, the Bank of China was founded by the Government of the Republic of China, but it's established until 1942. From the Northern Expedition to the Second Sino-Japanese War in 1937, which has been described, a "golden decade" in Chinese banks history. Modern Chinese banks allowed many industries loans and offered loans to rural areas. In December of 1948, the first People's Republic of China established and also the name used more than 30 years. While, 1949, the republic of China was established and then the Chinese banking systems also changed a lot. After the Chinese civil war, the central bank of China effectively raised inflation and also bring the nation's finances under central control from 1949 to 1952. However, over that term, the banking systems were modified in order to suit the varying environments and new policies. In addition, the banking system was extended and diversified to meet the modification programs and the banking activities, during the 1980s. Since 1949, Chinese people build up their personal savings accounts in order to reduce the demand of goods and raise the amount of capital for investment, which under the China's leaders urged. In 1950s, the Agricultural Bank was created to facilitate financial operations in the rural areas. In the countryside savings were deposited with the rural credit cooperatives, which could be found in most towns and villages. On 1st October of 1954, People's Construction Bank of China (CCB) was built but in March of 1996, it was changed name to China Construction Bank. In the middle of 1980s, urban credit cooperatives related to the Chinese banking system. While, at that time period, the banking system still lacked some of the services and characteristics, only a few people used saving accounts and credit cards then in 1986, the first credit card (Great Wall) was created in order to change this situation. In 1979, China created the first foreign bank and in 1999 the People's Bank of China (PBOC) expanded their local currency to foreign banks. In January of 1984, the Industrial and Commercial Bank of China Ltd. (ICBC) has a limited company. Until 1987, the Chinese banking system included: People's Bank of China, Agricultural Bank, Bank of China, China Investment Bank, China Industrial and Commercial Bank, People's Construction Bank, Communications Bank, People's Insurance Company of China, Rural Credit Cooperatives and Urban Credit Cooperatives. In 2001, China entered into the World Trade Organization (WTO) that means Chinese banking system will become more competitive with other countries; it must be followed by the rule of WTO. And also, the structure of the banking organization was modified to suit the changing conditions and some new polices. Actually, when China went into WTO, consumers became worldwide, they purchase broad goods that made in China then it increased Chinese demand of goods and stimulated economic growth. In addition, the Chinese banking system can take loans, exchanged money to foreign banks or foreigners. When China entered into the WTO, it must be open their bank sectors to foreign banks in next five years. Then from 2001 to 2006, China allowed foreign banks to do business with foreign-invested companies and foreign individuals such as PBOC opened their branches to allow foreign-funded banks. Although, China has a slow started, it has already fulfil the WTO conditions nearly end of 2006. Because China opened its door for foreign countries then it got a rush growth of economic and GDP but it also took some risk, such as the global financial crisis in 2008. We all know, the global financial crisis happened in U.S. then it influenced to global. While, comparing to American, Chinese Banks got a less affected by the financial crisis that will show in graphs1, 2 and 3 in section 2.3.1, which are the interest rates and mortgage loan rates in China and America. Also in appendix, there are balance sheets, income statements and cash flows. We can see and compare these figures clearly in these graphs and tables, which was changed less than American banks from 2007 to 2011. In addition, there are many other figure results to illustrate the Chinese Agricultural Bank got less affected by the financial crisis than American banks. The writer will introduce more details in main body. In this essay, the writer main explain why was the Chinese Agricultural Bank less affected by the Financial crisis compared with the American Banks? First of all, the writer introduced the Chinese banking systems' developing in the introduction. In the main body, the writer divided into 5 detail parts: firstly, the writer will give out a definition of financial crisis and explain why the financial crisis happened in American. Secondly, she will find out some difference between Chinese Banks and American banks in banking systems and policies. In this part, the main way is to analysis some data and balance sheets to prove the writer's opinion. Thirdly, from above analysis and conclusion, the writer will describe some influences and changes by the financial crisis in Chinese Agricultural Bank. On the Fourth, the writer will discuss the Chinese Agricultural Bank's disadvantages, and also some advantages in American banks. At the last part in main body, the writer will give out her opinion or advice about the Chinese Banking systems' future developing and how to solve or avoid the financial crisis happen again. Then at last part, the writer will make a summary about this essay and her opinion.

Literature Review

Since 2008 when financial crisis occurred, the topic of why financial crisis happened is thoroughly discussed and researched from different aspects. A. Turner [1] concluded that the crisis is due to the interplay between macroeconomic imbalances and the development of financial market. Excessive saving rates in developing countries leaded to the explosion of macro imbalances which in turn triggered the financial development. Securitized credit instruments are the core of the innovation and expansion in the financial market. J.B. Taylor [2] held the opinion that frequently monetary excesses are the cause of the crisis which is the same with the classic explanation for financial crisis. The loose fitting monetary policy from 2000 to 2006 is blamed for stimulating the financial crisis. House boom also is the key element in the process of building up to financial crisis. C. M. Reinhart and K. S. Rogoff [3] examined the crisis in 2008 through the all the historical record to see whether this crisis is an unusual problem compared with previous banking crisis after WWII. Results show that they share several similarities both in quantitative and qualitative aspects. Petro-dollar plays an important role in forming the account surpluses. All of the paper mentioned above discussed the cause of financial crisis from the economic aspects, R. B. Adams [4] analysed the impact of weak governance on financial firm in this crisis. The research reveals that recent governance reforms should also be blamed for its insufficient supervision. Several suggestions are given in terms of improving the management of financial firms especially banks. Since 2008, the aftermath of financial crisis emerged gradually which presented a different social and economic patterns compared with previous years. However the actual effects vary from each regions and different countries due to their characteristics in economic and political systems. M. Castells et al [5] look at the culture transformation after financial crisis which includes economic culture and political culture. The profiles of the world in post financial crisis are described in details. C. M. Reinhart and K. S. Rogoff [6] use data of many countries to show the changes of several key indicators throughout the crisis such as housing prices and equity price. Most importantly, government's debt exploded mainly because of the collapse in tax revenues and economic contractions. The rises of debts in the future are also estimated with a conservative view. P. Berkmen et al [7] in 2009 exlpained the different impact of financial crisis on ranging of developing countries and markets. The research aims to understand the impact through investigate a small set of variables and parameters. Eventually results revealed that the countries with domestic financial system of more leveraged and faster credit growth are more likely to be affected by the financial crisis. A large decline in their growth outlook has higher chance of occurrence. To be more specific, the impact of financial crisis on each individual country is well researched. China is studied by Ligang Liu in 2009 [8] by showing empirical evidence and quantifying the effect from different aspects in China. Data of Investment share, Growth in exports, inward FDI (Foreign Direct investment) and private consumption expenditure during 1980 to 2008 illustrate the trends and changes of Chinese economy throughout the financial crisis. And also the fiscal stimulus package that was conducted by Chinese government is discussed with respect to its influence and side effects. J.Ghosh et al [9] at the same time evaluated the extent that Indian suffered from the recession. Writer criticised the opinion that Indian would less affected by this crisis and pointed out that the economic development in India depends on global integration. Hence the economic system becomes "vulnerable" to both internal and external crisis. As we can see from the previous paragraphs, the impact of financial crisis has reached almost every country and market in the world. The whole incident involves from a national crisis to international and global crisis. For a specific country, the influences cover every corner ranging from economic, political to social and financial aspect. Especially on economic aspect which has been discussed above, direct influence is obvious and significant. While banking systems is a fundamental element and representative in economic and financial system, it also has been paid a lot of attentions in terms of its changes and impact. M. Clerides and C. Stephanou [10] introduce the changes of the banking systems in Cyprus after the financial crisis. The writers pointed out that banking system should be cautious of disproportionally expansion (which is relative to the economy's size) for domestic banks. Policy responses that have been taken to date by the government are also presented. Similarly the impact of financial crisis on the banking system of Kazakhstan is demonstrated by V. Anichshenko [11], in which the consequences of the crisis and resolution of it are also mentioned accordingly. Suggestions are given in order to stabilize the economy and avoid the default of banks. According to the literature review, the solutions and suggestions that have been given share great similarities in terms of financial regulation reform. Lessons are learned from the past failure. For instance, Tuner [1] held the opinion that regulators were concentrated too much on the institution by institutions regulation of idiosyncratic risk and central banks were mainly focused on monetary policy which was tightly defined to meet inflation targets. Current supervision failed to take large current deficit, rapid credit extension and house price increase and the purchase of mortgage securities in to consideration as a whole. Hence the overall system risk climbs along with the development of financial market. Novel approach to capital adequacy, liquidity and regulation by economics substance are the three most important and fundamental methods needs to be implemented. For more details, please refer to the paper written by Tuner. However, not all the advices are exactly the same due to the different economic system and condition in different countries [12]. The research aims to analyse the impact of financial crisis on Chinese banking systems and provide practical advices to the future development of Chinese banking systems. Hence the corresponding solutions and advices for Chinese banking systems should take into their own characteristic into consideration. China, as the second large economic entity in the world and closely connected with the American in many aspects, is also significantly influenced by the financial crisis. William H. Overholt [13] evaluated the extent that China was affected by the financial crisis and introduced the policy and strategies that were implemented during the financial crisis. Although the stimulus package successfully help the Chinese economy recover from the big recession, systematic problems still remain unsolved. Especially in the banking systems, E. Geretto and R. Pauluzzo [14] pointed out the disadvantages of Chinese banking system and the possibilities of improvement in the future. At the same time, J. Du and S. Girma examined Chinese banking industry from the parameters of cost economies, efficiency and productivity growth. Both of the papers reveal the potential of Chinese banking system in dealing with financial crisis in the future. Based on the literature review, in the past few years, there aren't a lot of works focusing on comparing the banking systems between China and America. Not to mention that the Chinese and American banking systems are discussed together under the background of financial crisis.

Main Body

According to the Chinese banking systems history, the writer will mainly describe Chinese Agricultural Banks in the financial crisis. 2.1 The reason of Financial Crisis happened in American In 2008, we all know, the global financial crisis happened and it leaded to worst influence in the world, which made a lot of people lose their jobs and many companies went bankrupt and other bad situations. The financial crisis made many people and companies worried their current situation. What is financial crisis? How it made a bad situation in the world? Actually, when some financial institutions or assets suddenly lose a large part of their value, this phenomenon called financial crisis. It was triggered by liquidity short term fall down in the United States banking system and it was resulted in the collapse of large financial institutions, such as the financial crisis in 2008 was beginning under financial institutions fail in United States, then the failed financial institutions driven by houses bubble. Because American's house price grew up rapidly and also government used credit or encourage more people to get credit in banks to purchase or rent assets. During that term, American's banks provided more convenient conditions to take people get loan easily and banks need to take more risk. While, at that time, Federal Reserve System increased interest rate then US houses' market dropped down, the mortgages (houses) were less than their true value, which leaded high percentage of default then banks have higher risk. This situation called houses bubble collapsed, which rose to subprime financial or mortgage crisis in 2006. It caused the values of securities tied and damaged financial institutions globally. In order to transfer these risks, American banks created some innovative methods: MBS (Mortgage Backed Security), CDS (Credit Default Swaps) and CDO (Collateralized Debt Obligations) to attract global companies appreciate. The MBS is a bond that likes a pool of mortgages to pay by homeowners. CDS is a kind of credit derivative market, which includes interest rate swaps and foreign exchange swaps. CDO is a kind of structure asset-backed security; the debt obligations are including loans and bonds. Lehman Brothers hold a lot of MBS, CDO and CDS bonds, when American's houses price decrease, all of the bonds must be shift to debt and then Lehman cannot take these bonds to invest or buy any goods. Their current liabilities were higher than current cash flow then it went to bankrupt. After the Bear Stearns bankruptcy in March 2008, Lehman Brothers Holdings Inc. was falling down that is a significant event that leading to the 2008 global financial crisis. The Lehman Brothers bankruptcy was leaded by the American's subprime mortgage crisis; it was not only a fourth largest investment bank in US but also a global financial services firm, which connected with many countries financial organizations. When it went bankruptcy, a huge number of companies fall in trouble then this pushed the global financial crisis happened in 2008. Actually, in the introduction of this essay, the writer introduced China jointed into WTO in 2001 and after next 5 years, China finished the condition that most foreign company in China. This raised Chinese import and export trading business. When the financial crisis happened in American, then China also got some influence in many parts such as Chinese banks. 2.2 Banking systems in American and China (Big Four) The reasons that financial crisis happened are indicated in section 2.1. But what is the exact impact of financial crisis on banking system in terms of their annual performance and financial balance sheet? Before analysis the influence by the financial crisis on banking systems, we need to know the banking systems in American and China first, and then find out some difference between them. There is really interesting, the two countries are all existing "Big Four" in banking system. However, it is totally different, not only their names but also their baking systems and business. 2.2.1 Chinese "Big Four" In China, the "Big Four" banks included Agricultural Bank of China (ABC), the Bank of China (BOC), Industrial and commercial Bank of China (ICBC) and People's Construction Bank or China Constructions Bank (CCB). The "Big Four" had the primary responsibility to fund the country's state-owned enterprises in the 1990s in China. Then the writer will introduce them respectively. ICBC is the largest lender of assets in China and also the youngest in the "Big Four". It was founded in 1984 and issued the primary bank card in 1989. Since 1991, the ICBC was gained federal approval to establish a branch in New York City. As the first one in China, the ICBC established a branch outside of China in 1992 and opened a branch in Europe after 3 years. ICBC was China's first step as a representative in the international banking area and in 2008; it became the 2nd Chinese bank. The Bank of China (BOC) was founded in 1912 and it took responsibility of allocating foreign exchange reserves, setting the exchange rates under the Chinese currency, arranging foreign loans and other foreign operations. In 1928, the Chinese Central Bank of China replaced its role then the BOC became a purely commercial bank. In December of 2010, the Bank of China as a first Chinese bank to offer RMB products in New York. The BOC is the largest lender to non-institutions and foreign exchange lender in China. ABC is primarily focus on retail banking as Chinese 3rd largest lender by assets. It was founded in 1951 to assist financial operations in the rural areas then it provided financial supports to agricultural units, loans, handled state appropriations, directed the operations of rural credit cooperatives and carried out overall supervision of rural financial affairs. The rural credit cooperatives are small-scale financial services in country side, such as this kind of small scale need to follow uniform state banking policies but it acted as an independent unit for accounting purposes. CCB was managed state and loans for capital construction but it reformed policy in order to increase the responsibility and activities in banking system. Then it has shifted the main activity of investment funding from the government budget to bank loans. The China Constructions Bank checked the loan recipients to ensure the funds were used for their designated construction purpose. CCB is a member of the Global ATM Alliance, which means, under the Global ATM Alliance, CCB can joint venture in several major international banks, it allows customers use the ATM card or check card at another bank without any charging fees. 2.2.2 American "Big Four" Unlike Japan and United Kingdom only have one bank regulator that authority over the banking, securities and insurance industries is combined into one single financial service agency, but United States regulated at both the federal and state level in banking system. The central banking system of the United States called the Federal Reserve System and the Great Depression as a major factor to lead changes in this system. In today, the Federal Reserve System's duties to conduct the nation's monetary policy, supervise and regulate banking institutions, maintain the stability of the financial system and provide financial services to depository institutions. In American, the "Big Four" called: JPMorgan Chase, Bank of American, Citigroup, and Wells Fargo. According to assets in United States, the JPMorgan Chase is the largest bank. It mainly works multinational, which likes banking corporation of securities, investments and retail. There are mainly six business segments in JPMorgan Chase: card services and consumer lending, commercial banking, investment banking, asset management, corporate, treasury & securities services and other personal and business banking operations. Bank of America (BA) is also a multinational bank and financial services corporation. It was the world's largest wealth management corporation as a major player in investment banking market in 2008. It also a member of Global ATM Alliance as China Construction Bank then when people get an ATM card in BA but used in CCB, they do not need to pay any more charge. Then in 2005, Bank of America got 9% stake in China Construction Bank (CCB). Actually under the Global ATM Alliance, a lot of international banks connected with other banks. Citigroup (Citi) is a multinational financial services corporation headquarter in US as a 3rd largest retail bank that based on deposits. In the Citigroup, US government engineered at least 4 different rescues. And it was one of the world's largest mergers that combining huge Citicorp and financial business. Citibank as one part of Citigroup is the largest bank, credit cards issuer and charge cards in the United States. It is also the first and only one international bank without any cooperation with Chinese domestic banks to issue credit cards used its own brand. With the subprime mortgage crisis began, Citigroup was exposure into toxic mortgages in CDOS and also under poor risk management then led Citi into serious trouble. Under these reasons, in 2008 the global financial crisis, Citigroup took huge losses but it got a massive stimulus from US government to rescue. Although the Citi took huge losses, it built up a giant cash reserve 420 billion. The Wells Fargo was mainly focus on operations in the world as a multinational diversified financial services company then then Wells Fargo Bank is primary focus on US operating subsidiary. It is the largest bank by market capitalization with over 80 different financial services. 2.3 Financial crisis in American and China (金融危机前后数据的变åŒ-) From above, we can get more details information about Chinese and American "Big Four" banks. Then the writer will take the banks' performance graphs to illustrate the exact impact by the financial crisis on banking systems. Firstly, the writer according to the Chinese and American banks' annual performance from pre-financial crisis to post financial crisis, get a summary and graphs to prove that Chinese banks got less influence than American by the financial crisis. 2.3.1 First to introduce the Central bank of China's loan rate and interest rate to compare with American (Federal Reserve System) Following section 2.2, we get these banks' business clearly. In order to make the conclusion clearly and simplicity, the writer separates these banks into 4 parts: ABC to Citigroup, CCB to BA, BOC to JPMorgan Chase and Industrial & Commercial Bank to Wells Fargo, because they are doing similar main banking business, such as: the Agricultural Bank of China and Citigroup are mainly doing retail banking business and the same to others. Before comparing them separately, we need to know the interest rate on loans. In China, the Central Bank (People's Public of China) publishes loan rate according to consumers' supply and demand chain, economic environment and other reasons. Because the loan rate changed like with 4 different period times: less than 6 months, between 6 months to 1 year, 1year to 5 years and up to 5 years, then the writer only make one graph clearly to illustrate result. From 2007 to 2011, the loan rate changed in China under below graph that same as the interest rate and deposit rate. In the graph, the Central Bank changed rate nearly more than 5 times per year, especially from 2008 to 2010 the financial crisis period. In 2008, the loan rate changed dramatically that shows on the graph. At the beginning of 2008, it dropped a little but start at July, the loan rate felled down sharply that is under 5% in the less than 6 months loan rate. However, from September 2010, the Central Bank of China started to increase the rate. According to describe the loan rate of China, Federal Reserve System also control the interest rate on loans in America. Below the graph, we see the interest rate on loans dropped dramatically from 2007 when the housing prices went down, which reached 3.25% until 2009 then got stabilized to 2011. In American Interest Rates graph, the interest rate reached 0.25% as historic lowest from 2009 to 2010. The lower interest rate made consumers borrow money for investment because it makes consumers' disposable income increase and then increased the demand of items to stimulant economy. Comparing to the changes of interest rates, we can get the Chinese banking systems influenced less than American, because from 2008 to 2009, the interest rate in China got a little bit climbing. And also at the end of 2010, the interest rate increased dramatically. That means the Chinese economic recovery from 2011. On the contrary, the American interest rate still keep historic lowest from 2009 until now that is easily to illustrate the Chinese banking systems got less influenced by the financial crisis than American. Of course, there are many details in the "Big Four" banking to certify this consequence, in section 2.3.1; the writer will describe them separately. 2.3.1 Their "Big Four" balance sheets In todays, most banks are doing many area businesses such as commercial, investment, retail and others, and also their businesses are not divided clearly. In order to compare the influenced by financial crisis, the writer will compare them separately that according to their main business then divided them into some groups. Actually, when the financial crisis happened that influenced many areas such as share price, mortgage loans, interest rates and unemployment rates and others. Then among all of the areas, the most significant ones are chosen to show the impacts of financial crisis. The first compare group is the Agricultural Bank of China (ABC) to Citigroup under their main business of retail banking, which is implement transactions with consumers directly not to other banks or corporations. It includes personal loans, savings, mortgages, transactional accounts, debit and credit cards. With these businesses, the financial crisis was influence in personal loans, savings, mortgages and credit cards. Then the writer compares them in Resident Mortgage Loans, Net Income, Number of Employees and other parts to explain the Agricultural Bank of China got less affected. ABC share price Citigroup share price From above Resident Mortgage Loans, the Agricultural Bank of China's personal mortgage loans were increasing dramatically but the Citigroup's showed a slow and continuous decrease that means when Chinese Central Bank drop the interest rate from 6.5% to 5% in 2007-2009, it took an outstanding result in stimulate resident mortgage loans but in contrary with Citigroup. No doubt, the financial crisis made heavily unemployment. Then under the number of employees in ABC and Citigroup, we can see the ABC's employees not changed too much from 2007 to 2011 but in Citigroup, the number of employees decreased obviously during 2007-2009. That means, the Citigroup unemployment rate raised greatly during the financial crisis. Although the Net Income in income statements has influenced by many parts, it released to negative of Citigroup in 2008 that mainly affected by the financial crisis. Comparing to ABC, the net income still keep positive from 2007 to 2010. From the history and graph of share price in ABC, it went public with A (Shanghai Stock Exchange) and H (Hong Kong Stock Exchange) in July 2010, then we cannot see the share price in above. However, in the above graph, we can see the Citigroup's share price was dropping down sharply from 500 to 45 from 2007 to 2009. Secondly, the China Constructions Bank (CCB) and the Bank of America (BA), they are mainly focused on investment banking. The investing banks support individuals, government and corporations to increase their capital. Under the financial crisis, Bank of America got badly hurt but Chinese Constructions Bank is still earning money with the Chinese economy expand. The result shows under below graphs: Resident mortgage loan Number of employees CCB share price BA share price With the resident mortgage loan graph, the BA's personal mortgage loan looks stabilize from 2007 to 2011. Conversely, the CCB got specifically increase from 2008 under the Chinese Central Bank reduce interest rate. From the net income graph in China Constructions Bank and the Bank of America, we can see CCB increased radically from 2007 to 2011 but BA has a converse line, it got a slowly reduce that was nearly to negative net income. In share price graphs, the CCB reduced from 8 to 3 nearly drop 62.5% but in BA, it was decreased more than 90%. The Bank of China, JPMorgan Chase, Industrial & Commercial Bank of China and Wells Fargo are all describe in up four areas: Resident Mortgage Loan, Net Income, Number of employee and share prices. The result is similar, which shows the American banks were influenced higher than Chinese. 2.4 The difference in banking system between American and China (通过金融危机的影响和2.2来分析) According to the structure and business in "Big Four" of America and China, the Chinese banks got less influenced. What leads Chinese banks got less affected? To answer this question, the writer finds some difference in banking systems between these two countries. The US banking system is the largest one in the world, and from the section 2.2, we know the Federal Reserve System is the central bank in America that likes that the People's Bank of China, which provides more flexible, stable monetary and financial system to banks. The two central banks are mainly controlled by their countries' government separately and also their all losses will eventually to its government. Nonetheless, there still have some difference performances between two countries in earlier and poster the financial crisis. According to their many difference parts in banking systems, the writer picks up some important point to illustrate and analysis. 2.4.1 Regulations different The firstly and mainly important differ is banking supervision. Banking supervision must exist in every country's financial system that makes sure the financial institution safety and soundness, it involves monitoring, examining and inspecting banking organizations and also it assess customers' conditions that relevant to laws and regulations. However, American and Chinese banking supervision are distinct: regulatory framework and the basic problem in financial markets are different. We all know, the American financial market has a laisser faire [1] idea, then it took most banks more rely on their own control and management. In addition, the American financial regulatory system consists of state and Federal supervision. The banks are not only regulated by the Federal but also each state has their own supervision organizations, which is looser to banks than Federal. From 1963, the US government was helping and encouraging homeowners to buy houses under the US houses' prices dramatically increased condition. And then the central bank of America (Federal Reserve System) dropped the interest rates dramatically from 1984 to 2008, which showed in section 2.3.1 graphs, which government wanted customers loan more money from banks to invest in order to stimulate economy. In addition, every bank was hoped to earn more profits than others then during that time, they took out some lower and looser loan conditions for customers. For example: JPMorgan Chase did not request customers repay ability to loan and also it allowed homeowners without putting deposits for mortgage. Conversely, Chinese regulation system is diversified, which are mainly divided into 3 parts: CBRC (China Banking Regulatory Commission), CSRC (China Securities Regulatory Commission) and CIRC (China Insurance Regulatory Commission). The CBRC is according to their main business to supervise such as commercial banks, policy banks and others. The CSRC and CIRC are supervision in securities, futures, funds and insurance area separately. The Chinese supervision is indicated that the Central bank has responsibility to control and regulation macro-economic but at the same time, there still has other supervision organizations in micro-regulation. This type of supervision called institutional regulation, which is improving the professional level of regulation then to get their target easily. From section 2.3.1, we all know America and China were all reduce their interest rate from 2007 to 2009, while, Chinese central bank was only dropped 1.05% that is much less than American. In addition, Chinese banks are regulated by many parts as we mentioned above. Hence Chinese banks are strictly constrained and have limited rights to conduct mortgage activities based on their own benefit purpose. In Chinese regulation system, the CBRC strengthen combines financial supervision and market discipline together and also these prevent financial risk effectively and firstly. On the above of this regulation, Chinese banking systems regulation request banks must meet clients in person and also customers must comply with basic lending conditions, which reduce a lot of financial risk than other regulations. However, the institutional regulation also contains some disadvantages such as hard to coordinate these regulation organizations between each other, and this regulation too large that needs to spend a higher cost than others. In addition, this type regulation is easily to repeat some supervision questions, which is especially for universal banks but in todays, most banks are developing to universal such as ABC, CCB and other Chinese banks. 2.4.2 Other implements in banking system before the financial crisis At present, the American banks are mainly focus in mixes management, they can operate securities, insurance and other trust business but Chinese banks are primarily running traditional business (loan business), which showed details in section 2.2.1. Before the financial crisis happen, the American banks changed a large number of assets to securitization and then packed them like a high credit rating lower risk bonds such as CDO, CDS, then bought too much. At last, these bonds leaded many banks in heavy losses. For example: In the mid-2006, JPMorgan Chase created CDO bonds as initial stake then the JPM turned it into investment that sold to international. However, next year, the JPMorgan Chase was crashed by the houses' price went down suddenly. And also, during that time, the Bank of American also crisis by excessive leverage and it suffered by the subprime mortgage market. According to the global financial crisis, the JPMorgan took two mistakes: it made too many leveraged loans and also procured lower mortgages underwriting the banks' standards conditions. Nevertheless, Chinese banks did not influence by the financial crisis too much, they are mainly suffered by global economic recession that showed in section 2.3.1. 2.4.3 American banks' advantages Although, the American banks suffered heavily by the financial crisis, the regulation banking systems still exist some advantages that we need to learn. From section 2.4.1, we know the American banks used Federal and State regulation that is the most prominent feature in banking regulation. In the American law, it mainly empowers to Federal and states to regulate commercial banks' rights, while, other organizations also participate the commercial banks' regulation such as FRS, FRIC. This kind of regulations is effectively supervision and controls the commercial banks' behavior and also defuses some financial risks. Comparing with the Chinese reinforcement management, American banks' regulation is more focus on cooperation and coordination between regulators and regulated. For example: In American the regulation administration has a good relationship with banks, which makes America become the most financial activities and also the most strictly and depth financial regulation country. In addition, under a mixed operation situation, the American banks took out a special regulation (Umbrella Supervision) []. 美国这çåœ¨ä¸€å®šæƒ…况下采å-一定的监管手段也需要我们学习2.5 The effects and changes of Chinese banking systems in post financial crisis (advantages, disadvantages of banking system in China) (金融危机对中国银行系统的影响以及它们是怎么应对的 写出优缺点) According to above sections, we know the financial crisis influenced to Chinese banks. But what types of influences are there and what are the responses from Chinese banking systems to deal with the crisis need to be elaborated. In this section, the writer will talk about the effects and changes in details. In fact, the Chinese banking systems impacted by the global financial crisis were showed in banks' risk degree changes. Actually, when the financial crisis happened, there were two kinds of effects showed: direct and indirect. The directly risk degree changes are the financial crisis directly affected to Chinese banks' foreign exchange market and shareholding structures. While, the indirectly influence is caused by the global economic recession that leaded by the global financial crisis, which made Chinese macro-economic, foreign trade, financial monetary policy and others changed then it affected the Chinese banks' risk degree. The main influences are showed into 4 parts: Chinese banks' profit loss, ownerships structure changed, the quality of assets decline and the potential risks increase. Firstly, according to the section 2.1, we know the Chinese banks affected directly by the financial crisis, when dollar securities' prices went down that impaired a domestic Chinese bank's foreign exchange decrease and it directly leaded Chinese banks' actual loss. After China joined into WTO, Chinese banks went to international (overseas assets allocation), and then the dollar securities were played an important part in Chinese banks. When the subprime crisis happened in American, it made securities fluctuate sharply then the values were dropping down. Although, in above, we introduce the Chinese banks' regulation is institution but it still be a heavy loss by the financial crisis. In addition, the subprime crisis made and increased a financial gap to original investors in Chinese banks then it leaded Chinese public banks' share sell-off in financial market that leaded the Chinese banks have to changed their ownerships' structure. Also the indirect influence was the global financial crisis made economic recession in Europe countries then it affected Chinese export trade business and leaded Chinese banks' credit quality decrease. The effects are also showed with the potential risk increasing in macro-economic environment and money policies. Not only the macro-economic environment changed but also Chinese banks moderated and lose their monetary policy may be increase the potential risk. The same with American banks, China also have some changes in banking systems when the financial crisis happened such as Chinese central bank sharply decreased the interest rate from 2008, sharply increased credit money, and took out lower loan conditions to stimulate Chinese economic and other changes. According to these effects and changes, we can see that the Chinese banking systems still have some problems with the Chinese towards gradually perfect and complete banking systems. The writer will introduce some important problems as follows: firstly, domestic commercial banks have some original problems with they do not have representative to make a decision and supervision, which leaded contributors shortage and then the domestic commercial banks have a large number of non-performing loans. Under the Chinese government protect, the domestic commercial banks are lacking some endogenous power, competition and risk awareness. Secondly, Chinese central bank is controlled by government financial department not only on personal arrangement but also in making policies. It is too much relay on the government then it not good for banks developing in the future. Chinese banks have taken heavy burden of debts due to the deteriorated market environment. Systematic scheme slowed down the speed of revolution and reform in banking system. To be more specific, the "big four" are all suffered from the non-performing-loan which account for a large portion of the credit business. The risk of loan maintains at high level which affect the efficiency and profit ability for Chinese banks. 2.6 Future development of Chinese banking systems Impacted by the financial crisis, it not only took bad effects but also took some challenges to Chinese banks. Firstly, Chinese banks need to get the greatest ways to control macroeconomics in short-term to reduce the scale and depth by the global economic recession. While, this is depending on macro-economics' policy, we can through financial and positive monetary policy to satisfy needs and also government can change the policy with the demand to quick control macro-economic. How should we build more stable and sound banking systems, there is still another challenge to Chinese banks. With the problems of Chinese banks and above two challenges that are leading some future development to Chinese banks. We all know the financial crisis influences to Chinese banks are not short-term happened, that means, the effects are long-term and deep that maybe face the same problems in the future. Then Chinese banks should learn some methods from American banks experience, such as improve banks' management consciousness, find out some active and steady innovation ways, increase and strengthen banking supervision and inspection power and other future enhancement or changes. Under the problems or disadvantages of Chinese banking systems, the writer think Chinese banks should consider these problems in the future: 进行必要的äºæƒæ”¹é©¼Œæ¶ˆé™¤å›½æœ‰å•†ä¸šé“¶è¡Œæ‰€å­˜åœ¨çš„å”托代理é-®é¢˜¼ˆæœ‰è‡ªå·±çš„代表来æŽåˆ¶¼‰æ‰¾åˆ°Ã¥â€¢â€ Ã¤Â¸Å¡Ã©â€œÂ¶Ã¨Â¡Å’的绩效负责对象才有可能使国有商业银行运行的效率提高。 建立银行与企业é-´å›ºå®šçš„长期合作关系¼ˆæ ¹æ®ç¾Žå›½é“¶è¡Œä½“系的优点¼‰ä½¿é“¶è¡Œä¸Žä¼ä¸šåœ¨å…±åŒåˆä½œä¸­éƒ½å¾-到发展。进而减å°â€˜Ã¤Â¼ÂÃ¤Â¸Å¡Ã§Å¡â€žÃ¨Å¾ÂÃ¨Âµâ€žÃ¦Ë†ÂÃ¦Å“¬¼Œä¿æŒäº†ä¼ä¸šç»æµŽçš„长期æ€å’ŒæŒç»­æ€åŒæ-¶ä¹Ÿç»´æŒäº†é“¶è¡Œç¨³å®šçš„主营业务收入来源。 中央银行逐步从政府的一个部é-¨è½¬å˜ä¸ºä¸€ä¸ªç‹¬ç«‹çš„机构¼Œä»Žè€Œæ‰èƒ½æŽŒç®¡å’Œå¼•å¯¼é‡‘融业务朝着正常的æ-¹å‘发展。 中央银行不独立意味着利率¼Œå…¬å¼€å¸‚场操作等对经济进行è°Æ’æŽçš„杠杆作用å°â€ Ã¨Â¢Â«Ã¥Â¼Â±Ã¥Å’-¼Œå-而代之的是强制æ‰è¡Œçš„命令。 Conclusion 还需要写的内容: 未来的发展变åŒ-() Conclusion 数据分析还需要完å-„ Literature Review reference: Adair turner, The financial Crisis and the future of financial regulation, the economist's inaugural city lecture, 21st January 2009 J.B. Taylor, 2009, The financial Crisis and the policy responses: an empirical analysis of what went wrong, National Bureau of Economic Research Working Paper Series, Vol. 14631 Carmen M. Reinhart & Kenneth S. Rogoff, 2008. "Is the 2007 US Sub-prime Financial Crisis So Different? An International Historical Comparison," American Economic Review, American Economic Association, vol. 98(2), pages 339-44, May. 2008 Adams, R. B. (2012), Governance and the Financial Crisis. International Review of Finance, 12: 7-38. Castells, Manuel, Caraca, Joao and Cardoso, Gustavo, (2012), Aftermath: The Cultures of the Economic Crisis, Oxford University Press, Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "The Aftermath of Financial Crises," American Economic Review, American Economic Association, vol. 99(2), pages 466-72, May. Berkmen, Pelin, Gelos, Gaston, Rennhack, Robert K. and Walsh, James P., The Global Financial Crisis: Explaining Cross-Country Differences in the Output Impact (December 2009). 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