1 Introduction

Home , Du Wei (Three Kingdoms), Fei (surname), Fu Rong, Fu Rong (Three Kingdoms), Fu Zhong, Ji Ben

Notes

1 Introduction

1. In this book, the term “bank(s)” or “banking” refers to deposit-taking institutions or retail banking. All translations are by the author, except where otherwise indicated. 2. Banks around the World, Top Banks in the World 2013, 2013, http://www .relbanks.com/worlds-top-banks/assets. 3. United States-China Economic and Security Review Commission, “China’s Financial System and Monetary Policies: The Impact on U.S. Exchange Rates, Capital Markets, and Interests Rates,” 2006, http://www.uscc.gov /hearings/2006hearings/transcripts/aug_22/06_10_22_trans.pdf, 3. 4. Zhong Fei Zhou, Banking Laws in China (London: Kluwer Law International, 2007). 5. Zhou Zhong Fei and Li Jing Wei, “Independence and Accountability of the People’s Bank of China: A Legal Perspective,” in James R. Barth (ed.), Financial Restructuring and Reform in Post-WTO China (London: Kluwer Law International, 2007), 77, 103. 6. Susan Krause Bell and Howard Chao, The Financial System in China: Risks and Opportunities Following the Global Financial Crisis (Washington, DC: Promontory Financial Group, 2010), 7; IMF, “People’s Republic of China: Financial System Stability Assessment,” 2011; World Bank and the People’s Republic of China Development Research Center of the State Council, “China 2030 Building a Modern, Harmonious, and Creative High-Income Society,” 2012. 7. Anthony Ogus, Regulation Legal Form and Economic Theory (Oxford: Hart Publishing, 1994), 4. 8. CBRC, Guan Yu Zhong Guo Ren Min Yin Hang Ye Jian Du Wei Yuan Hui Lu Xing Yuan You Zhong Guo Ren Min Yin Hang Lu Xing de Jian Du Guan Li Zhi Ze de Jue Ding [Decision on Chinese Banking Regulatory Committee in Charge of Supervisory and Regulatory Responsibility], 2003, http://www .cbrc.gov.cn/chinese/home/jsp/docView.jsp?docID=259. 9. Laws of People’s Republic of China on Banking Regulation and Supervision, 2003, s3. 10. CBRC, Yin Jian Hui de Jian Guan Mu Biao [The Regulatory Objectives of the CBRC], 2003, http://www.cbrc.gov.cn/english/info/yjhjj/index.jsp 158 NOTES

11. CBRC, Annual Report 2008, Beijing, 2009, 16. 12. CBRC, Annual Report 2007, Beijing, 2008, 101. 13. Ibid., 60. 14. Laws of People’s Bank of China, 1995, s3. 15. PBoC, Zhong Guo Ren Min Yin Hang Hang Zhang Zhou Xiao Chuan Hui Da Ji Zhe Ti Wen [The PBoC’s Governor Zhou Met the Media], Beijing, 2011, http://www.pbc.gov.cn/publish/goutongjiaoliu/524/2011/2011080300504242 3947288/20110803005042423947288_.html. 16. PBoC, Zhong Guo Ren Min Yin Hang Jian Jian [The Introduction of the PBoC], Beijing, 2000, http://www.pbc.gov.cn/publish/zhengwugongkai/495 /1811/18118/18118_.html. 17. Please refer to chapter 4 for further details. 18. Gregory C. Chow, China’s Economic Transformation, 2nd ed. (Oxford: Wiley- Blackwell, 2007), 252. 19. Xinhua, Li Jie Quan Guo Jin Rong Hui Yi Hui Gu [Revisiting National Conference on Financial Work], Beijing, 2007, http://news.cctv.com/special /C17533/20070118/103903.shtml. 20. Ibid. 21. Dai Xiang Rong, “Hui Gu 1997 Quan Guo Jin Rong Gong Zuo Hui Yi” [1997’s National Conference on Financial Work], Zhong Guo Jin Rong [China Finance] 55 (2010): 19–20. 22. In China, the financial sector is segregated into banking, insurance, and security. 23. Xinhua, Li Jie Quan Guo Jin Rong Hui Yi Hui Gu. 24. Xinhua, Quan Guo Jion Rong Gong Zuo Zai Jing Zhao Kai Wen Jiao Bao Zuo Zhong Yao Jiang Hua [Wen’s Speech at the National Conference on Financial Work], Beijing, 2007, http://news.xinhuanet.com/politics/2007–01/20/content _5630446.htm. 25. Gail Pearson, “Risk and the Consumer in Australian Financial Services Reform,” Sydney Law Review 28 (2006): 103. 26. Xinhua, Zhong Yang Jing Ji Gong Zuo Hui Yi Ju Xing Xi Jing Ping Zuo Zhong Yao Jiang Hua [Xi Jing Ping’s Speech at the Government’s Meeting on Economy], Beijing, 2012, http://news.xinhuanet.com/fortune/2012–12/16 /c_114044452.htm. 27. CPC, Bu Duan Ti Shen Fa Zhan Zhi Liang he Xiao Yi [Develop the Quality and “Xiao Yi” of the Economy], Beijing, 2013, http://cpc.people.com.cn /shipin/n/2013/0322/c244186–20886323.html. 28. National People’s Congress, “Constitution of People’s Republic of China,” 1982, Preamble. 29. The State Council, Gong He Guo de Zu Ji [Path of the Republic], Beijing, 2009, http://www.gov.cn/jrzg/2009–09/24/content_1425253.htm. 30. Zhong Gong Zhong Yang Wen Xian Yan Jiu Shi [The Communist Party of China Research Department], Jiang Ze Ming Lun You Zhong Guo Te Se de She Hui Zhu Yi [Jiang Ze Min: Socialist Market Economy with Chinese Characteristics], The Communist Party of China Research Department, 2002, 45. NOTES 159

31. Report on 15th the Communist Party of China National Meeting, 1997, http:// cpc.people.com.cn/GB/64162/64168/64568/index.html. 32. Ibid. 33. Chen Shi Kui, “Bu Du Li Gao Dang Jia Yu She Hui Zhu Yi Shi Chang Jing Ji de Neng Li” [Increase the Party’s Capability in Managing Socialist Market Economy], Chong Qin You Dian Yue Xuan Xue Bao [Journal of Chong Qin Post College] 2 (2006): 145. 34. World Bank and the People’s Republic of China Development Research Center of the State Council, “China 2030,” 111. 35. The table has been compiled based on PBoC, “China Monetary Policy Report 2013 First Quarter,” 2013, 7. 36. IMF, “How the IMF Promotes Global Economic Stability,” 2013, 1, http:// www.imf.org/external/np/exr/facts/globstab.htm. 37. Ibid., 1. 38. World Bank, “Governance and Development,” 1992, 1, http://documents .worldbank.org/curated/en/1992/04/440582/governance-development. 39. A.W. Phillips, “Stabilisation Policy in a Closed Economy,” Economic Journal 64, no. 254 (1954): 291. 40. World Health Organization, “China: Health, Poverty, and Economic Development,” 2005, 25, http://www.who.int/macrohealth/action/CMH _China.pdf. 41. Claude Ake, “A Definition of Political Stability,” Comparative Politics 7, no. 2 (1975): 271. 42. Wendy Dobson and Anil K Kashyap, “The Contradiction in China’s Gradualist Banking Reforms: General Discussion,” Brookings Papers on Economic Activity 2 (2006): 158 and Suzanne Berger, Albert Hirschman, and Charles Maier, In Search of Stability: Explorations in Historical Political Economy (New York: Cambridge University Press, 1987), 267. 43. Alberto Alesina, “Political Instability and Economic Growth,” Journal of Economic Growth 1, no. 2 (1996): 205. Some research show that there is no evidence of correlation between political instability and economic growth. See N. Campos and J. Nugent, “Who is Afraid of Political Instability?” Journal of Development Economics 67 (2002): 172. Also see Samuel Huntington, Political Order in Changing Societies (New Haven, CT; London: Yale University Press, 1968), 8. 44. The State Council, Hu Jing Tao Zai Qing Zhu Zhong Guo Gong Chang Dang Cheng Li 90 Zhou Nian Da Hui Shang de Jiang Hua [Hu’s Speech at 90th Anniversary of the Foundation of the Communist Party of China], Beijing, 2011, http://www.gov.cn/ldhd/2011–07/01/content_1897720.htm. 45. Xinhua, Zhong Guo Zheng Zhi She Hui Wen Ding Ju You Jian Shi de Ji Chu [A Solid foundation for China’s Political Stability], Beijing, 2011, http://news .xinhuanet.com/politics/2011–03/16/c_121195656.htm. 46. David Dollar, “Poverty, Inequality and Social Disparities During China’s Economic Reform,” Policy Research Working Paper 4253, World Bank, 2007, 2. 47. China Daily, Country’s Wealth Divide Past Warning Level, http://www.chinadaily.com.cn/china/2010–05/12/content_9837073.htm. The Gini coefficient 160 NOTES

provides a measure of the degree of income inequity in a scale from 0 to 1.0 that represents perfect equity. See Australian Bureau of Statistics, Household Economic Wellbeing, September 2010, http://www.abs.gov.au/ausstats/abs@ .nsf/2f762f95845417aeca25706c00834efa/27ced12db6ca9111ca25779e001c4 843!OpenDocument. 48. Thomas Lum, “Social Unrest in China,” Congressional Research Service, The Library of Congress, 2006, 15. 49. Stephan Haggard and Sylvia Maxfield, “Political Explanations of Financial Policy in Developing Counties,” in Stephan Haggard, Chung H. Lee, and Sylvia Maxfield (eds.), The Politics of Finance in Developing Countries (Ithaca, NY: Cornell University Press, 1993), 323. 50. “Yin Jian Hui Dang Wei” [The Communist Party of China Committee on the CBRC], 2009, http://www.gov.cn/gzdt/2009–09/30/content_1430875 .htm. 51. Ian Bremmer, The End of the Free Market (New York: Penguin Group, 2010), 5. 52. Richard Dale and Simon Wolfe, “The UK Financial Services Authority: Unified Regulation in the New Market Environment,” Journal of Banking Regulation 4, no. 3 (2003): 201. 53. George Clarke et al., “Foreign Bank Entry: Experience, Implications for Developing Economies, and Agenda for Further Research,” The World Bank Research Observer 18, no. 1 (2003): 26. This view is contentious, see Bang Nam Jeon, Maria Pia Olivero, and Ji Wu, “Do Foreign Banks Increase Competition? Evidence from Emerging Asian and Latin American Banking Markets,” Journal of Banking & Finance 35 (2011): 858. 54. Chung-Hua Shen, Chin-Hwa Lu, and Meng-Wen Wu, “Impact of Foreign Bank Entry on the Performance of Chinese Banks,” China & World Economy 17, no. 3 (2009): 120. 55. The American Chamber of Commerce People’s Republic of China, “American Business in China,” 2011, 174. 56. Katharina Pistor, “Banking Reform in the Chinese Mirror,” Columbia Law and Economics Working Paper No. 354, Columbia University School of Law, 2009, 19–20. 57. Xinhua. Yin Jian Hui: Wai Zi Yin Hang Yun Xing He Jian Guan Mian Ling Tiao Zhan [The CBRC: The Operation and Supervision of Foreign Banks Are Challenged], Beijing, 2010, http://news.xinhuanet.com/finance/2010 –04/15/c_1236071.htm. 58. CBRC, Annual Report 2006, Beijing, 2007, 6, 42. 59. CBRC, Annual Report 2007, 11. 60. Yuhua Xu, “Multi-Year Expert Meeting on Services, Development and Trade: The Regulatory and Institutional Dimension Country Report: China,” United Nations Conference on Trade and Development, 2009, http://www .unctad.org/sections/wcmu/docs/c1mem3p32_en.pdf. 61. Jiang Yun, “Lun Wo Guo Dang Qian Li Yong Wai Zi He Jing Ji Zhu Quan de Guan Xi” [Foreign Participation and Economic Sovereignty], Chang San Jiao [Yangtze Delta] 5, no. 6 (2008): 125. NOTES 161

62. CBRC, Annual Report 2010, Beijing, 2011, 26. 63. The American Chamber of Commerce People’s Republic of China, “American Business in China,” 174. 64. Adam Zwass, Money, Banking, & Credit in the Soviet Union & Eastern Europe (White Plains, NY: Sharpe, 1979), 81. 65. Ludwig von Mises, Economic Calculation in the Socialist Commonwealth (Auburn, AL: Ludwig Von Mises Inst, 1920), 27. 66. Allen Franklin, Jun Qian, and Meijun Qian, “China’s Financial System: Past, Present, and Future,” in Loren Brandt and Thomas G. Rawski (eds.), China’s Great Economic Transformation (Cambridge: Cambridge University Press, 2008), 509. 67. For elaborated comments regarding “the Four Transformations and Eight Reforms,” see William Byrd, China’s Financial System: The Changing Role of Banks (Boulder, CO: Westview Press, 1983), 58. 68. Ibid. 69. Donald Clark, Peter Murrell, and Susan Whiting, “The Role of Law in China’s Economic Development,” in Loren Brandt and Thomas G.Rawski (eds.), China’s Great Economic Transformation (New York: Cambridge University Press, 2008), 381. 70. Ibid. 71. “Guan Yu Zhong Guo Ren Min Yin Hang Xing Shi Zhuan Men Zhong Yang Yin Hang Zhi Neng de Jue Ding” [Decision On People’s Bank of China Being a Specialist Central Bank], State Council, Beijing, 1983. 72. Zhong Fei Zhou, Banking Laws in China, xx. 73. “Guan Yu Zhong Guo Ren Min Yin Hang Xing Shi Zhuan Men Zhong Yang Yin Hang Zhi Neng de Jue Ding. 74. Wang Guo Gang, “Zhong Guo Yin Hang Gai Ge: Li Shi, Xian Zhuang yu Wei Lai” [Reform in the Chinese Banking Sector: History, Present, and Future], Zhong Guo Jing Ji Wen Ti [China Economic Issues] 6 (1996): 19. 75. Ren Min Ri Bao [People’s Daily], “Actively and Steadily Establishing Commercial Banks,” February 16, 1994, 5. 76. “Guan Yu Hui Fu Zhong Guo Nong Ye Yin Hang de Tong Zhi” [Notice on Reestablishing Agriculture Bank of China], State Council, Beijing, 1979. 77. Guan Yu Gai Ge Zhong Guo Yin Hang Ti Zhi de Qing Shi Bao Gao [Report on Reforming China’s Banking System], State Council, Beijing, 1979. 78. Qiao Gui Ming, “Zhong Guo Guo You Yin Hang Gai Ge de Yan Hua Lu Jin: 30 Nian” [The Revolution of Chinese State-Owned Banks: 30 Years on], Journal of Shanghai University of Finance and Economics 11, no. 1 (2009): 79. 79. Y. C. Richard Wong and M. L. Sonia Wong, “Competition in China’s Domestic Banking Industry,” Cato Journal 21, no. 1 (2001): 21. 80. Regulations on Foreign Banks and Joint Venture in Special Economic Zones, State Council, Beijing, 1985.Regulations of Shanghai’s Foreign Financial Institutions and Joint Ventures, State Council, Beijing, 1990. In 1981, Nanyang Commercial Bank set up a branch in Shenzhen, which was the first foreign bank branch in Mainland soil after Open-up policies. 162 NOTES

81. Jim Mann, “China Permits Foreign Bank to Open Branch,” Los Angeles Times, August 22, 1985, http://articles.latimes.com/1985–08–22/business /fi-2463_1_foreign-bank-branches. 82. These banks were solely state owned. 83. TangNa De and BuLi En, “Zhong Guo De Yin Hang Ye Gai Ge” [Reform in China’s banking sector], Wai Guo Li Lun Dong Tai [Western Theories] 9 (2009): 3. 84. Guo Wu Yuan Guan Yu Jin Rong Ti Zhi Gai Ge de Jue Ding [State Council’s Decision on Financial Reform], State council, Beijing, 1993. 85. Zhu Xin Qiang, “The Pace Quickens,” Paper presented at the Bankers’ Association for Finance and Trade’s 14th Annual Conference on International Trade, Chicago, 2004. 86. Weitseng Chen, “WTO: Time’s Up for Chinese Banks—China’s Banking Reform and Non-Performing Loan Disposal,” Chicago Journal of International Law 7, no. 1 (Summer 2006): 247. 87. Laws of Commercial Banks, People’s Republic of China, 1995, s4. 88. Wong and Wong, “Competition in China’s Domestic,” 21. 89. Ming, “Zhong Guo Guo You,” 80. 90. Lu Xiang, “Zhong Guo Yin Hang Ye Gai Ge Kai Fang Li Cheng de Yan Jiu” [Study on China’s Banking Sector Reform and Development], Journal of Chongqing University 16, no. 3 (2010): 23. 91. Zheng Dun Cheng Shi Xin Yong He Zuo She Gong Zuo Fang An [Plan on Reorganizing Urban Credit Cooperatives], State Council, Beijing, 1998. 92. Xinhua, Wang Qi Shan: Wo Yi Da Dun, Ni Men Jiu Pao Le [Wang Qi Shan: You Ran Away When I Napped], http://news.xinhuanet.com/zt2011 /content/2011–03/14/content_2313609.htm, September 19, 2011. 93. Laws of People’s Bank of China, s30. 94. Ibid., s32. 95. YK Mo, “A Review of Recent Banking Reform in China,” International Bank Settlement, 1999, 99. 96. Jason George, Ben Fung, Stefan Hohl, and Guonan Ma, “Public Asset Management Companies in East Asia,” Bank For International Settlements, 2004, 11. 97. Yingyi Qian, “The Institutional Foundations of China’s Market Transition,” Paper presented at the World Bank’s Annual Conference on Development Economics, Washington, DC, April 28–30, 1999, 35. 98. Zhong Fei Zhou, Banking Laws in China, xxii. Those asset management companies were Great Wall, Orient, Cinda, and Huarong. 99. Liu Gang, “Jing Ji Zhuan Xing Yao Qiu Guo You Yin Hang Gai Ge” [Economic Transformation Needs the Reform in Banking Sector], Shi Dai Jing Rong [Times Finance] 1, no. 433 (2011): 8. 100. PBoC, “Implementing Plans for Reforming Provincial Offices of the People’s Bank of China,” Bulletin of the People’s Bank of China 61 (February 10, 1999): 4, 5. NOTES 163

101. World Trade Organization, WTO Successfully Concludes Negotiations on China’s Entry, September 17, 2009, http://www.wto.org/english/news_e /pres01_e/pr243_e.htm. 102. John R. Dearie, “China’s Financial System and Monetary Policies: The Impact on U.S. Exchange Rates, Capital Markets, and Interests Rates,” U.S.-China Economic and Security Review Commission, 2006, 44. 103. Report on 16th the Communist Party of China National Meeting, 2002, http://cpc.people.com.cn/GB/64162/64168/64569/65444/4429125.html. 104. CBRC, Annual Report 2006, Our Mandate and Objectives. 105. PBoC, Shanghai Zong Bu [Shanghai Head Office], Beijing, 2003, http:// shanghai.pbc.gov.cn/publish/fzh_shanghai/2969/index.html. 106. United States-China Economic and Security Review Commission, “China’s Financial System and Monetary Policies,” 16. 107. Zhou Xiao Chuan, “Guan Yu Guo You Shang Ye Ying Hang Gai Ge de Ji Ge Wen Ti” [Some Problems Regarding the Reform of State Commercial Banks], PboC, 2005. 108. Niu Dun, “Xin Shi Ji Zhong Guo Shang Ye Yin Hang Gai Ge Fen Xin” [Analysis of Reform on China’s Commercial Banks in New Century], Cai Shui Jing Mao [Economic and Taxation] 6 (2009): 6. 109. Xinhua, Nong Ye Yin Hang Gong Si Gu Pai Cheng Li [Establishment of Agriculture Bank of China Corporation], September 14, 2009, http://news .xinhuanet.com/fortune/2009–01/16/content_10668090.htm. 110. China Construction Bank, “2005 Annual Results Announcement,” 2006, 4, http://www.ccb.com/en/investor/1144375719100.html. 111. Xinhua, Jiang Hang Shang Shi [China’s Construction Bank’s IPO], September 8, 2011, http://news.xinhuanet.com/stock/2005–10/27/content _3691258.htm. 112. Michael F. Martin, “China’s Banking System: Issues for Congress’ Congressional Research Service,” 2012, 35. 113. Steven Fries and Anita Taci, “Banking Reform and Development in Transition Economies,” European Bank for Reconstruction and Development, Working Paper No. 71, 2002, 1. 114. CBRC, Guo Wu Yuan Ban Gong Ting Guan Yu Yi Fa Cheng Chu Fei Fa Ji Zi You Guan Wen Ti de Tong Zhi [Notice on Punishing Illegal Fund-raising], Beijing, 2007. According to Section 6 of Several Opinions of the Supreme People’s Court on Issues Concerning Credit Cases (1991), interest on private loans is not to exceed four times bank interest rate. 115. Niu Tai Shen, “Cong Wu Ying An Kan Ming Jian Rong Zi Fa Lu Kun Ju” [Case of Wu Ying: the Conundrum of Informal Financing], Jing Ji [Economy] 10 (2011): 57. 116. CBRC, Annual Report 2009, Beijing, 2010, 45. 117. However, recent research questions the effect of inform financing in pro- moting growth. See Meghana Ayyagari, Asli Demirguc-Kunt, and Vojislav Maksimovic, “Formal versus Informal Finance: Evidence from China,” The Review of Financial Studies 23, no. 8 (2010): 3048–3097. 164 NOTES

118. Tony L. Whitehead, Basic Classical Ethnographic Research Methods, Ethnographically Informed Community and Cultural Assessment Research Systems (eiccars) Working Paper Series, University of Maryland, 2005, 4. 119. Karen P. Y. Lai, “Marketization through Contestation: Reconfiguring China’s Financial Markets through Knowledge Networks,” Journal of Economic Geography 11 (2010): 94.

2 Banking Regulatory Theories

1. Code of Federal Regulations (US), s1.1. 2. Australian Government, Best Practice Regulation Handbook, Depart- ment of Finance, 2010, 9, http://www.finance.gov.au/obpr/proposal/better -regulation-draft-handbook.html. 3. Barry M. Mitnick, The Political Economy of Regulation: Creating, Designing and Removing Regulatory Forms (New York: Columbia University Press, 1980), 3. 4. Also referred to as economic theory of regulation. 5. Chris Wheeler, “The Public Interest We Know It’s Important, But Do We Know What It Means,” AIAL Forum 48 (2006): 12. 6. Leslie A. Pal and Judith Maxwell, “Assessing the Public Interest in the 21st Century: A Framework,” Canadian Policy Research Networks, 2004, 4. 7. A. J. Boudreau, “Public Administration and the Public Interest,” The Canadian Journal of Economics and Political Science 16, no. 3 (1950): 371. 8. Pal and Maxwell, “Assessing the Public Interest,” IV. 9. Panagiotis Delimatsis, “Due Process and Good Regulation Embedded in the GATS-Disciplining Regulatory Behaviour in Services through Article VI of the GATS,” Journal of International Economic Law 10, no. 1 (2006): 23. 10. Ethics and morality, see Andrew Reddick, The Duality of the Public Interest: Networks, Policy and People (Carleton University, National library of Canada, 2002), 32. 11. James Barth, Gerard Caprio, and Ross Levine, Rethinking Bank Regulation: Till Angels Govern (Cambridge: Cambridge University Press, 2006), 21. 12. House of Commons, “Banking Crisis: Regulation and Supervision,” House of Commons, UK, 2009, 37. 13. Arthur Cecil Pigou, The Economics of Welfare (London: Macmillan, 1938), xviii. 14. Stephen Breyer, Regulation and Its Reform (The President and Fellows of Harvard College, Harvard University Press, 1982), 15. 15. Oliver James, “Regulation Inside Government: Public Interest Justifications and Regulatory Failures,” Public Administration 78, no. 2 (2000): 330. For instance, a buyer signing an exclusive dealing contract poses an externality on other buyers. 16. Kevin Dowd, “Is Banking a Natural Monopoly?” KYKLOS 45, no. 3 (1992): 388. NOTES 165

17. FSA, “Electronic Money,” London, 2006, 6. 18. FSA, “Financial Promotions Industry Update Stand-alone Compliance,” London, 2009. All financial promotions must be stand-alone compliant, regardless of their form, content, location, or target audience. 19. FSA, “Principles of Good Regulation,” 2001, http://www.fsa.gov.uk/Pages /about/aims/principles/index.shtml. 20. Justifications for protection in the banking sector in regard to foreign bank entry include the following: (1) infant industry argues that time is needed for domestic bank consolidation if local banks are to compete effectively with foreign multinational banks and (2) strategic policy advocates the banking sector is too important to be left in the hands of foreigners: national interest theory. 21. Eugene N. White, “Lessons from the History of Bank Examination and Supervision in the United States 1863–2008,” Conference on Financial Market Regulation after Financial Crises: The Historical Experience, Banca d’Italia, Rome, April 16–17, 2009. 22. It is one condition of the 1997–1998 crisis bailouts by the IMF. The WTO agreement requires gradual easing of restrictions on foreign banks. 23. Benefits of foreign bank entry include reductions in cost structures; improvements in operational efficiency; introduction and application of new technologies and banking products; marketing skills and management, and corporate governance structures; and creation of human capital. See Ramkishen S. Rajan and Sasidaran Gopalan, “Foreign Bank Entry Reconsidered,” Institute of South Asian Studies, 2009, 2. 24. For example, foreign banks in host countries will be adversely affected by bank failure in home countries. 25. E. W. Bond and K. J. Crocker, “Bank Capitalization, Deposit Insurance, and Risk Categorization,” Journal of Risk and Insurance 60, no. 3 (1993): 547. 26. Anthony J. Cataldo, Information Asymmetry: A Unifying Concept for Financial and Managerial Accounting Theories (New York: JAI Press, 2003), 19. 27. Charles Goodhart et al., Financial Regulation: Why, How and Where Now? (New York: Routledge, 1998), 5. 28. Ibid., 9. 29. David Llewellyn, “Regulation of Retail Investment Services,” Economic Affairs 15, no. 2 (1995): 14. 30. Basel Committee on Banking Supervision, “Core Principles for Effective Banking Supervision,” 2006, 19–26. 31. Robert Pozen, Why We Need to Lower the FDIC Deposit Guarantee, Harvard Business Review, October 5, 2009, http://blogs.hbr.org/cs/2009/10/fixing _the_fdic.html. 32. The United States federal deposit insurance scheme has been set at the amount of $100,000 since 1980. See Title III, “Depository Institutions Deregulation And Monetary Control Act,” 1980. 33. Jonathan R. Macey, Geoffrey P. Miller, and Richard S. Carnell, Banking Law and Regulation, 3rd ed. (New York: Aspen Publishers, 2001), 63. 166 NOTES

34. Catherine England, “Are Banks Special?,” Spring CATO Review of Business & Government Spring, 1991, 33. 35. Failures of banks and other financial institutions, especially in large numbers, can deprive society of capital and increase its cost. They are the most serious direct consequences of a systemic failure. See Steven L. Schwarcz, “Systemic Risk,” The Gergetown Law Journal 97 (2008): 198. 36. E. Gerald Corrigan, “The Banking-Commerce Controversy Revisited,” Quarterly Review (Federal Reserve Bank of New York) 16 (1991): 3. 37. Franklin Allen, Elena Carletti, and Douglas Gale, “Interbank Market Liquidity and Central Bank Intervention,” Journal of Monetary Economics 56, no. 5 (2009): 640. 38. Macey, Miller, and Carnell, Banking Law and Regulation, 65. 39. In August 2007, bank runs occurred at Northern Rock and within three days, £6 billion of deposits were withdrawn from the bank. See David Llewellyn, “The Northern Rock Crisis: A Multi-Dimensional Problem,” in Franco Bruni and David T. Llewellyn (eds.), The Failure of Northern Rock: A Multi- Dimensional Case Study (Vienna: The European Money and Finance Forum, 2009), 13. 40. In 2001, World Bank researchers documented almost 120 systemic bank crises in 93 countries since 1970; World Bank, “Financing for Growth: Policy Choices in a Volatile World,” 2001, 75, http://econ.worldbank.org/external /default/main?pagePK=64165259&theSitePK=475520&piPK=64165421&me nuPK=64166093&entityID=000094946_01052404084811. 41. Prasanna Gai and Sujit Kapadis, “Contagion in Financial Networks,” Proceedings of the Royal Society 466 (2010): 2401–2402. 42. Paul J. J. Welfens, “The Transatlantic Banking Crisis: Lessons and EU Reforms,” Policy Paper No. 2, Institute for the Study of Labor, Bonn, Germany, 2009, 9. 43. Paul Hamalainen, “Fallout from the Credit Squeeze and Northern Rock Crises: Incentives, Transparency and Implications for the Role of Market Discipline,” in Franco Bruni and David Llewellyn (eds.), The Failure of Northern Rock: A Multi-Dimensional Case Study (Vienna: The European Money and Finance Forum, 2009), 61. 44. Patrick Honohan, “Risk Management and the Costs of the Banking Crisis,” Institute for international integration Studies, TCD and CEPR, 2008, 9. 45. Robert R. Bliss and George G. Kaufman, “U.S. Corporate and Bank Insolvency Regimes: An Economic Comparison and Evaluation,” Federal Reserve Bank of Chicago, 2006, 3–5. 46. The Federal Deposit Insurance Act of 1950 applies to banking organizations. By contrast, the UK has seemed problematic in the case of Northern Rock and others. See Cadwalader Wickersham and Taft LLP, The Banking Act 2009: Counterparty Rights and Insolvent Banks, 2009, http://www.martindale.com /banking-law/article_Cadwalader-Wickersham-Taft-LLP_657250.htm. 47. Wickersham and Taft LLP, Banking Act 2009 (UK), s4. By this act, stabiliza- tion powers are tailored to rescuing a failing bank partially or entirely in NOTES 167

business. A new bank insolvency procedure is in place to deal with the ter- mination of a failing bank, and a new bank administration procedure where there is a partial transfer of business from a failing bank. 48. Wickersham and Taft LLP, The Banking Act 2009, June 12, 2012. 49. APRA, “Financial Regulation in the Twenty-First Century,” 2000, http:// www.apra.gov.au/speeches/00_02.cfm, at October 13, 2010. 50. Ben S. Bernanke, “Bank Regulation and Supervision-Balancing Benefits and Costs,” Annual Convention of the American Bankers Association, Phoenix, 2006. 51. Barth, Caprio, and Levine, Rethinking Bank Regulation, 21. 52. S. L. Harris and C. A. Pigott, “Regulatory Reform in the Financial Services Industry: Where Have We Been? Where Do We Go?” OECD Financial Market Trends 35 (1997): 67. 53. Andrew Sheng, “Bank Supervision Principles and Practice,” World Bank Institute, 1990, 13, http://www-wds.worldbank.org/servlet/ WDSContentServer/IW3P/IB/1999/10/23/000094946_9910130704031/ Rendered/PDF/multi_page.pdf. 54. Financial Services and Markets Act 2000 (UK), s6(3). 55. Ibid., s5. 56. James Wilson, The Politics of Regulation (New York: Basic Books, 1980), x. 57. Fred S. Mcchesney, “Rent Extraction and Rent Creation in the Economic Theory of Regulation,” Journal of Legal Study 16 (January 1987): 102. 58. James Madison, Federalist No. 10, Daily Advertiser, November 22, 1787, http://www.constitution.org/fed/federa10.htm, at September 20, 2010. 59. George Stigler, “The Theory of Economic Regulation,” Bell Journal of Economics and Management Science 2, no. 1 (1971): 3. 60. Barth, Caprio, and Levine, Rethinking Bank Regulation, 35. 61. Xavier Freixas and Anthony M. Santomero, “An Overall Perspective on Banking Regulation,” Working Papers 02–1, Federal Reserve Bank of Philadelphia, 2002, 8. 62. For example, the attitude of the government to bank(s) can be influenced by its desire for (self-)aggrandizement. See Pennsylvania Constitutional Convention, Proceedings and Debates of the Convention of the Commonwealth of Pennsylvania (Harrisburg : Packer, Barrett and Parke, 1837), 546. 63. Frances Rosenbluth and Ross Schaap, “The Domestic Politics of Banking Regulation,” International Organization 57, no. 2 (2003): 307. 64. Ross Levine, Banking Regulation and Supervision, 2005, http://www.nber. org/reporter/fall05/levine.html. 65. World Bank, “Financing for Growth,” 43. 66. Mcchesney, “Rent Extraction and Rent Creation,” 101. 67. Gerard Caprio and Daniela Klingebiel, “Bank Insolvency: Bad Luck, Bad Policy, or Bad Banking?” Paper presented at the Annual World Bank Conference on Development Economics, Washington DC, 1996, 5. 68. Ping Xie and Lei Lu, “Li Yi Gong Tong Ti de Xie Po Yu Gong Mo Xing Wei: Lun Jin Rong Jian Guan Fu Bai de Yi Ban Te Zheng Yu Bu Meng Te Zheng” 168 NOTES

[Intimidation and Collusion: General and Special Charactoristics of China’s Financial Corruption], Jing Rong Yan Jiu [Journal of Finance] 7 (2003): 14. 69. Ibid., 4. 70. Gary Becker, “A Theory of Competition among Pressure Groups for Political Influence,” The Quarterly Journal of Economics 98, no. 3 (1983): 394–396. 71. Randall Kroszner and Philip Strahan, “Obstacles to Optimal Policy: The Interplay of Politics and Economics in Shaping Banking Supervision and Regulation Reforms,” University of Chicago, Graduate School of Business, 2000, 34. 72. Gary Becker, “Pressure Groups and Political Behavior,” in Richard D. Coe and Charles K. Wilber (eds.), Capitalism and Democracy: Schumpeter Revisited (Notre Dame, IN: University of Notre Dame Press, 1985), 141. 73. Samuel Huntington, “Social and Institutional Dynamics of One-Party Systems,” in Samuel Huntington and Clement Moore (eds.), Authoritarian Politics in Modern Society: The Dynamics of Established One-Party Systems (New York: Basic Books, 1970), 35. 74. Gary Becker, “Public Policies, Pressure Groups, and Dead Weight Costs,” Journal of Public Economics 28 (1985): 345. 75. Torsten Persson, “Economic Policy and Special Interest Politics,” The Economic Journal 108 (March 1998): 310. 76. John Mccallum and Andre Blais, “Government, Special Interest Groups, and Economic Growth,” Public Choice 54 (1987): 17. In American politics, it is argued that special interests are less influential than some observers alleged. See Stephen Miller, Special Interest Groups In American Politics (New Brunswick, NJ: Transaction Publishers, 1983), 138. 77. Arnoud Boot and Anjan Thakor, “Self-Interested Bank Regulation,” American Economic Review 83, no. 2 (1993): 206. 78. Florence Heffron and Neil McFeeley, The Administrative Regulatory Process (New York: Longman, 1983), 149–151. 79. Ann P. Bartel and Lacy Thomas, “Direct and Indirect Effects of Regulation: A New Look at OSHA’s Impact,” Journal of Law and Economics 28, no. 1 (1985): 25. 80. Ann P. Bartel and Lacy Thomas, “The Wage and Profit Effects of the Occupational Safety and Health Administration and the Environmental Protection Agency,” Journal of Law and Economics 30, no. 2 (1987): 57. 81. Marco van Hengel and Klaas Knot, “How to Reconcile Public Risks and Private Interests in the Banking Industry,” in Emiel Wubben (ed.), Institutions and Regulation for Economic Growth? Public Interests versus Private Incentives (Cheltenham, UK: Edward Elgar, 2011), 159. 82. Bank of England, HM Treasury, and FSA, “Financial Stability and Depositor Protection: Further Consultation,” London, 2008,13. 83. Leela Cejnar, “The Global Nature of Competition: Exploring Future Possibilities in the Aftermath of the Global Financial Crisis,” Macquarie Journal of Business Law 8 (2011): 211. 84. Bank of England, “Financial Stability and Depositor Protection,” 13, 60. NOTES 169

85. Kevin Davis, “Regulatory Reform Post the Global Financial Crisis,” Australian Centre for Financial Studies, University of Melbourne, 2011, 37. 86. J. W Verret, “Separation of Bank and State: Consolidating Bailed- Out Companies into the U.S. Debt Ceiling and Government Financial Statements,” Brigham Young University Law Review 2011, no. 2 (2011): 391. 87. Asli Demirguc-Kunt and L. Serven, “Are All the Sacred Cows Dead? Implications of the Financial crisis for Macro and Financial Policies,” The World Bank Research Observer 25, no.1 (2009): 46. 88. Goodhart et al., Financial Regulation, 9. 89. Schwarcz, “Systemic Risk,” 198–199. 90. Alistair Milne, “Can Central Bank Provision of Market Liquidity Create a Problem of Moral Hazard?” in Franco Bruni and David T. Llewellyn (eds.), The Failure of Northern Rock: A Multi-Dimensional Case Study (Vienna: The European Money and Finance Forum, 2009), 187. 91. Bidisha Chakrabarty and Gai Yan Zhang, “Financial Contagion Channels: Market Microstructure Evidence from Lehman Brothers,” Bankruptcy’ Southwestern Finance Association, 2010, 33, http://www.southwestern finance.org/conf-2011/swfa2011_submission_93.pdf. 92. Melanie L. Fein, “Expanding the Federal Safety Net: The Bear Stearns Bailout and Other Recent Actions by the Federal Reserve in Support of U.S. Financial Markets,” Fein Law Office, 2008, 1, http://papers.ssrn.com/sol3 /papers.cfm?abstract_id=1647098. 93. George J. Mailath and Loretta J. Mester, “A Positive Analysis of Bank Closure,” Journal of Financial Intermediation 3 (1994): 272–273. 94. Giancarlo Corsetti, Bernardo Guimaraes, and Nouriel Roubini, “International Lending of Last Resort and Moral Hazard: A Model of IMF’s Catalytic Finance,” IDEAS, 2005, 31, http://www.nber.org/papers/w10125. 95. Charles Goodhart and Haizhou Huang, “A Simple Model of an International Lender of Last Resort,” IMF Working Papers 00/75, International Monetary Fund, 2000, 11. 96. Maurice Obstfeld, “Lenders of Last Resort and Global Liquidity Rethinking the System,” Development Outreach, World Bank Institute, December 2009, 46. 97. Reforming Financial Market 2009, HM Treasury, London, 81. 98. Charles Goodhart, “The Regulatory Response to the Financial Crisis,” in Franco Bruni and David T. Llewelly (eds.), The Failure of Northern Rock: A Multi-Dimensional Case Study (Vienna: The European Money and Finance Forum, 2009), 166. 99. Obstfeld, “Lenders of Last Resort,” 45. 100. Steven A. Ramirez, “The Law and Macroeconomics of the New Deal at 70,” Maryland Law Review 62 (2003): 543. 101. For detailed discussion see section 6.4.1 Deposit Insurance Schemes. 102. Zhong Wen Liu and Yang Yu, “The Analysis of U.S. Deposit Insurance System and the Enlightenment to China,” Chinese Business Review 6, no. 43 (2007): 56. 170 NOTES

103. Asli Demirgus-Kunt and Edward J. Kane, “Deposit Insurance Around the Globe: Where Does It Work?” The Journal of Economic Perspectives 16, no. 2 (2002): 24. 104. Basel Committee on Banking Supervision and International Association of Deposit Insurers, “Core Principles for Effective Deposit Insurance Systems,” 2008, 2, http://www.bis.org/publ/bcbs156.pdf. 105. Douglas W. Arner, Financial Stability, Economic Growth, and the Role of Law (New York: Cambridge University Press, 2007), 219. 106. Asli Demirguc-Kunt and Enrica Detragiache, “Does Deposit Insurance Increase Banking System Stability? An Empirical Investigation,” Journal of Monetary Economics 49 (2002): 1374. Thorsten Beck, “The Incentive- Compatible Design of Deposit Insurance and Bank Failure Resolution: Concepts and Country Studies,” in David G. Mayes and Aarno Liuksila (eds.), Who Pays for Bank Insolvency? (New York: Palgrave Macmillan, 2004), 121. An industry-based funding approach is recommended as incentive-compatible, which changes the administrator from government to a private party. This approach doesn’t readily placate incentive dilemma inherent in deposit insurance schemes. 107. Arner, Financial Stability, 220. 108. Financial Stability Forum, “Guidance for Developing Effective Deposit Insurance Systems,” 2001, 1, 4, http://www.financialstabilityboard.org /publications/r_0109b.htm. 109. The Federal Deposit Insurance Corporation, FDIC Insurance Coverage Basics, Washington, DC, 2010, http://www.fdic.gov/deposit/deposits /insured/basics.html, at October 15, 2010. 110. Australian Government, Guarantee Scheme for Large Deposits and Wholesale Funding, Canberra, 2010, http://www.guaranteescheme.gov.au/, at October 15, 2010. 111. Extensive discussion, see Sebastian Schich, “Financial Crisis: Deposit Insurance and Related Financial Safety Net Aspects,” Financial Market Trends 2008, no. 2 (2009): 1–39. 112. Gillian G. H. Garcia, “Deposit Insurance: A Survey of Actual and Best Practices,” IMF Working Paper, Monetary and Exchange Affairs Dept., 1999, 26. 113. See under 2.4.3 Regulation of Business Conduct, insurance schemes could erode the effectiveness of incentive structure. 114. Luigi Zingales, “Testimony of Luigi Zingales on ‘Causes and Effects of the Lehman Brothers Bankruptcy,’” Speech delivered at the Before the Committee on Oversight and Government Reform, United States House of Representatives, October 6, 2008, http://research.chicagobooth.edu/igm /docs/Zingales-Testimonies.pdf. 115. “Funding of Deposit Insurance Systems: Guidance Paper,” The Research and Guidance Committee, International Association of Deposit Insurers, May 2009, 24. 116. Financial Stability Forum, “Guidance for Developing,” 4. 117. Demirgus-Kunt and Kane, “Deposit Insurance Around the Globe,” 192. NOTES 171

118. Beck, ‘The Incentive-Compatible Design,” 123. 119. Luc Laeven, “Bank Risk and Deposit Insurance,” The World Bank Economic Review 16, no. 1 (2002): 135. 120. Luc Laeven and Ross Levine, “Bank Governance, Regulation and Risk Taking,” Journal of Financial Economics 93, no. 2 (2009): 269, 273. 121. APRA, APRA Australia’s Prudential Financial Regulator, Canberra, 2000, http://www.apra.gov.au/AboutAPRA/upload/APRA-Brochure.pdf, at September 20, 2010. 122. Australian Government, Australian Prudential Regulation Authority, Canberra, 2001, http://www.budget.gov.au/2001–02/pbs/html/apra.htm, at September 22, 2010. 123. For prudential regulation details, see Vincent Polizatto, “Prudential Regulation and Banking Supervision,” in Dimitri Vittas (ed.), Financial Regulation: Changing the Rules of the Game (Washington, DC: World Bank Publications, 1992), 286–294. 124. Goodhart et al., Financial Regulation, 5. 125. Macey, Miller, and Carnell, Banking Law and Regulation, 95. 126. ADI Authorisation Guidelines 2008, 6, http://www.apra.gov.au/adi /Documents/ADI-Guidelines-11–4-081.pdf. 127. Including ownership structure, governance, risk management and internal control systems, compliance, information and accounting systems, external and internal audit arrangements, and so on. See ibid. 128. Basel Committee on Banking Supervision, The Basel Committee’s Response to the Financial Crisis: Report to the G20, 2010, 4, http://www.bis.org/publ /bcbs179.pdf. 129. Andrew Haynes, “The Effective Articulation of Risk-Based Compliance in Banks,” Journal of Banking Regulation 6, no. 2 (2005): 146. 130. Robert Baldwin and Julia Black, “Really Responsive Regulation,” The Modern Law Review 7, no. 1 (2008): 59. 131. Kern Alexander, “Editorial: Reforming the Basel Accord,” Journal of International Banking Regulation 4, no. 4 (2003): 298. 132. Joanna Gray, “Is It Time to Highlight the Limits of Risk-based Financial Regulation?” Capital Markets Law Journal 4, no. 1 (2009): 51. 133. Basel Committee on Banking Supervision, The Basel Committee’s Response to the Financial Crisis, 4. 134. Basel Committee on Banking Supervision, “International Framework for Liquidity Risk Measurement, Standards and Monitoring,” 2009, 1. 135. Basel Committee on Banking Supervision, “Strengthening the Resilience of the Banking Sector,” 2009, 60, http://www.bis.org/publ/bcbs165.htm. 136. Basel Committee on Banking Supervision, Comprehensive Response to the Global Banking Crisis, September 2009, http://www.bis.org/press /p090907.htm. 137. House of Commons, “Banking Crisis,” 30. 138. Luci Ellis, “Macroprudential Policy: A Suite of Tools or a State of Mind?” http://www.rba.gov.au/speeches/2012/sp-so-111012.html. There are new macro-prudential tools such as catastrophe insurance. See Anil K. Kashyap, 172 NOTES

Raghuram G. Rajan, and Jeremy C. Stein, “Rethinking Capital Regulation,” Paper prepared for Federal Reserve Bank of Kansas City symposium on Maintaining Stability in a Changing Financial System, Wyoming, August 21–23, 2008. 139. Warwick Commission, “The Warwick Commission on International Financial Reform: In Praise of Unlevel Playing Fields,” University of Warwick, Conventry, UK, 2009, 12 and Jeffrey Gordon and Colin Mayer, “The Micro, Macro and International Design of Financial Regulation,” Columbia Law and Economics Working Paper No. 422, 2012, 1 140. Michal Kowalik, “Countercyclical Capital Regulation: Should Bank Regulators Use Rules or Discretion?” Federal Reserve Bank of Kansas City, 2011, 68. 141. David Llewellyn, “The Economic Rationale for Financial Regulation,” Financial Services Authority, 1999, 11. 142. Basel Committee on Banking Supervision, “International Convergence of Capital Measurement and Capital Standards,” 2006, 226. 143. Mairead Devine, “Basel II Pillar 3 The Big Picture,” Accountancy Ireland 39, no. 5 (2007): 36. 144. Hamalainen, ‘Fallout from the Credit Squeeze,” 51. 145. World Bank, “Financing for Growth,” 92. 146. Paul Hamalainen, Maximilian Hall, and Barry Howcroft, “A Framework for Market Discipline in Bank Regulatory Design,” Journal of Business Finance & Accounting 32 (2005): 185. 147. M. J. B. Hall, The Regulation and Supervision of Banks, The International Library of Critical Writing in Economics Series (Cheltenham, UK: Edward Elgar Publishers, 2001), 1–4 and Pozen, Why We Need to Lower, October 14, 2010. 148. Kashyap, Rajan, and Stein, “Rethinking Capital Regulation.” 149. Laeven and Levine, “Bank Governance,” 269, 273. 150. Gerard Caprio and Patrick Honohan, “Can the Unsophisticated Market Provide Discipline?” World Bank, 2004, 1. 151. Bank of International Settlements, “Financial Stability in Emerging Market Economies,” 1997, 16, http://www.bis.org/publ/gten02.htm. 152. Kern Alexander, Rahul Dhumale, and John Eatwell, Global Governance of Financial Systems (New York: Oxford University Press, 2006), 243. 153. Counterparty Risk Management Policy Group, Containing Systemic Risk: The Road to Reform, 2008, 10, http://www.crmpolicygroup.org/docs /CRMPG-III.pdf. 154. Steven L. Schwarcz, “Rethinking the Disclosure Paradigm in a World of Complexity,” University of Illinois Law Review 2004 (2004): 1. In this article, three possible responses are considered: (1) tolerating insufficient disclosure, (2) proscribing transactions for which disclosure would be insufficient, and (3) requiring supplemental protections. 155. Gregory W. Smith, “Testimony of Gregory W. Smith, General Counsel Colorado Public Employees’ Retirement Association,” Speech delivered at the Before the United States House of Representatives Committee NOTES 173

on Oversight and Government Reform Causes and Effects of the Lehman Brothers Bankruptcy, 2008, http://financialservices.house.gov /uploadedfiles/072711smith.pdf. 156. Bank of England, “Financial Stability and Depositor Protection,” 157. 157. Financial Transparency (EC Directive) Regulations 2009 (UK). 158. For example, minutes of meeting should be published, Reforming Financial Market 2009, 12. 159. David Llewellyn, “Institutional Structure of Financial Regulation and Supervision: The Basic Issues,” Speech delivered at the World Bank Seminar Aligning Supervisory Structures with Country Needs, Washington, DC, 2006. 160. The FSA will be disbanded, see HM Treasury, Government Publishes Financial Services Bill, January 27, 2012, http://www.hm-treasury.gov.uk /press_08_12.htm, at April, 20, 2012. 161. For example, at the federal level, there are five agencies regulating deposit- taking institutions. These are the Office of the Comptroller of the Currency, the Federal Reserve, the Federal Deposit Insurance Corporation, the Office of Thrift Supervision, and the National Credit Union Administration. 162. James Barth, Jie Gan, and Daniel E. Nolle, Global Banking Regulation and Supervision: What Are the Issues and What Are the Practices? (New York: Nova Science Publishers, 2009), 26. One form of “competition in laxity” refers to the situation where regulators lower their regulatory standards in response to trade and investment pressure. See Dale D. Murphy, The Structure of Regulatory Competition: Corporations and Public Policies in a Global Economy (Oxford: Oxford University Press, 2004), 7. 163. The Department of the Treasury, “Blueprint for a Modernized Financial Regulatory Structure,” 2008, 141, http://www.treasury.gov/press-center /press-releases/Documents/Blueprint.pdf. 164. ACCC, “What We Do,” Canberra, http://www.accc.gov.au/content/index .phtml/itemId/54137. 165. See chapter 5 for a detailed discussion of regulatory dissonance in the context of China’s banking regulation. 166. Consumer Affairs Victoria, “Debt Collection Harmonisation Regulation,” Consumer Affairs Victoria, Melbourne, 2011, 6, 11. 167. The strategies are command & control, self-regulation, incentives, market- harnessing controls, disclosure, direct action, rights and liabilities laws, and social insurance. See Robert Baldwin, Martin Cave, and Martin Lodge, Understanding Regulation Theory, Strategy, and Practice, 1st ed. (Oxford: Oxford University Press, 1999), 58–62. 168. Stigler, “The Theory of Economic Regulation,” 3. 169. Julia Black, “Critical Reflections on Regulation,” Australian Journal of Legal Philosophy 27 (2002): 2. 170. Ian Bartle and Peter Vass, Self-Regulation and the Regulatory State: A Survey of Policy and Practice. Research Report No. 17, Centre for the Study of Regulated Industries, University of Bath, 2005, 24. 171. David M. Lawrence, “Private Exercise of Governmental Power,” Indiana Law Journal 61 (1986): 647. 174 NOTES

172. Andrew J. Donohue, “Keynote Address,” 2008, http://www.sec.gov/news /speech/2008/spch031008ajd.htm. 173. For example, by the end of 2008, the FSA reassessed rules that in total account for more than 80% of the administrative costs imposed on firms by regulation. See FSA, “Principles-Based Regulation Focusing on the Outcomes That Matter,” 2007, 8. 174. John Tiner, Principles-Based Regulation: The EU Context, 2006, http://www .fsa.gov.uk/pages/Library/Communication/Speeches/2006/1013_jt.shtml. 175. Julia Black, “Making a Success of Principles-Based Regulation,” Law and Financial Market Review 1, no. 3 (2007): 196. 176. Baldwin, Cave, and Lodge, Understanding Regulation Theory, 35. 177. Darren Sinclair, “Self-Regulation Versus Command and Control? Beyond False Dichotomies,” Law and Policy 19 (1997): 530. 178. Ian Ayres and John Braithwaite, Responsive Regulation Transcending the Deregulation Debate (New York: Oxford University Press, 1992), 35. 179. Ibid., 158. 180. Vasile Dedu, “Banking Risk Management in the Light of Basel II,” Theoretical and Applied Economics 17, no. 2 (2010): 112. 181. Basel Committee on Banking Supervision, ‘International Convergence of Capital Measurement,” 12–202. 182. Michael McAleer, Juan-Angel Jimenez-Martin, and Teodosio Perez- Amaral, Has the Basel II Accord Encouraged Risk Management During the 2008–09 Financial Crisis?, 2010, http://papers.ssrn.com/sol3/papers. cfm?abstract_id=1397239&download=yes. 183. Anthony Ogus, “Rethinking Self-regulation,” Oxford Journal of Legal Studies 15, no. 1 (1995): 97. 184. FSA, “The Supervision of Northern Rock: A Lessons Learned Review,” 2008, 23, http://www.frank-cs.org/cms/pdfs/FSA/FSA_NR_Report_25.4.08.pdf. 185. APRA, “The APRA Supervision Blueprint,” January 2010, 11, www.apra. gov.au. 186. Philippe Jorion, “Risk Management Lessons from the Credit Crisis,” European Financial Management 15, no. 5 (2009): 932. 187. Basel Committee on Banking Supervision, “Revisions to the Basel II Market Risk Framework,” 2009, 16, http://www.bis.org/publ/bcbs158.htm. 188. Zingales, “Testimony of Luigi Zingales,” October 6, 2008. 189. Kashyap, Rajan, and Stein, “Rethinking Capital Regulation.” 190. Basel Committee on Banking Supervision, “International Convergence of Capital Measurement,” 204. 191. World Bank, “Financing for Growth,” 93. 192. House of Commons, “Banking Crisis,” 58. 193. For example, regulators are mandated with unconstrained discretion in Dodd-Frank Wall Street Reform and Consumer Protection Act 2010. 194. Andreas V. Georgiou, “Excessive Lending, Leverage, and Risk-Taking in the Presence of Bailout Expectations,” IMF Working Paper /09/233, 2009, 3. 195. Counterparty Risk Management Policy Group, Containing Systemic Risk, 7. NOTES 175

196. Gerald Dworkin, “Paternalism,” in Richard Wasserstrom (ed.), Morality and the Law (Belmont, CA: Wadsworth Pub, 1971), 111. 197. FSA, “The Turner Review: A Regulatory Response to the Global Banking Crisis,” 2009, 87, http://www.fsa.gov.uk/pubs/other/turner_review.pdf. 198. Ibid., 108. 199. In accordance with private-interest theory, the private interest of regulators could also affect the contour of banking regulation. Deviating from the articulated goals of banking regulation, the private interest of regulators vested in regulatory process could be regarded as a side effect of banking regulation.

3 Banking Regulation in China: Why, What, and How?

1. Laws of People’s Republic of China on Banking Regulation and Supervision, 2003, s1. 2. Beifang Wang, Yin Jian Hui Fen Zhi [Establishment of CBRC Branches], Beijing, 2003, http://economy.enorth.com.cn/system/2003/10/14/000649510 .shtml. 3. Charles Goodhart and Dirk Schoemaker, “Institutional Separation between Supervisory and Monetary Agencies,” London School of Economics, 1993. 4. Shi Jian Ping, “Historical Movement for Chinese Banking Regulatory System,” Financial Times April 19, 2004. 5. Laws of People’s Republic of China on Banking Regulation and Supervision, s3. 6. Laws of People’s Bank of China, 1995, ss1, 2. 7. Laws of People’s Bank of China, 2003, s4. 8. Liu Ming Kang, “CBRC Feedback on the BCBS Documents,” 2010, 6, http:// www.bis.org/publ/bcbs165/cbrc.pdf. 9. “Announcement of Administration of Governmental Agencies,” State Council, Beijing, 1993. 10. PBoC, China Banking Regulatory Commission, Beijing, 2003, http:// www.pbc.gov.cn/detail_frame.asp?col=1910&id=5&isfromdetail=1# _Toc68074430. 11. Ministry of Finance, Zhu Yao Zhi Neng [The Functions of the Ministry of Finance], Beijing, 2000, http://www.mof.gov.cn/zhengwuxinxi /benbugaikuang/. 12. National Development and Reform Commission, Zhu Yao Zhi Ze [Functions of the National Development and Reform Commission], http://www.sdpc .gov.cn/jj/. 13. Li Rong Xiang, Chairman of SASAC, Xiang Jie Guo Zi Wei Xin Ren Wu: Jie Jue Guo Qi de Li Shi Bao Fu [Understanding the New Mission of SASAC: Solving Historical Problems of SOEs], Beijing, 2005, http://www.ce.cn /new_hgjj/guonei/zhbd/200507/14/t20050714_4184436.shtml. 14. China Finance Net, Great Loss for SOEs in Derivatives Market, Beijing, 2010, http://www.zgjrw.com/News/2010519/index/437634598800.shtml. 176 NOTES

15. Li Wei, Deputy Chairman of SASAC, Gu Ji Tou Hang Shi Yang Qi Jin Rong Yan Sheng Ping Fu Kui Zui Kui Huo Shou [Derivatives Caused a Great Loss to SOEs], Beijing, 2009, http://finance.sina.com.cn/roll/20091203/02267048089 .shtml. 16. Financial Times, China Talks Tough on Foreign Bank Derivatives, London, 2009,http://www.ft.com/intl/cms/s/0/0bf37b92-a149–11de-a88d-00144fe- abdc0.html#axzz1NEWAVglI. 17. Laws of People’s Republic of China on Banking Regulation and Supervision, s5. 18. Rules for Implementing the Regulations of the People’s Republic of China on Administration of Foreign-Funded Banks, CBRC, Beijing, 2006, s3. 19. Laws of Commercial Banks, 2003, s39. 20. Xinhua, Cun Kuan Bi Jian Guan 6 Yue Qi Cong Yan [Tighten Up Supervision of Loan-to-Deposit Ratio], Beijing, 2011, http://www.xinhua08.com/bank /jgdx/201104/t20110413_455128.html. 21. Notice on Implementing Rules of Regulations of the People’s Republic of China on Administration of Foreign-Funded Banks, CBRC, Beijing, 2006. 22. Pricewaterhousecoopers, “Foreign Banks in China,” 2010, 57, http://www .pwccn.com/webmedia/doc/634082194595490480_fs_foreign_banks _china_may2010.pdf. 23. Basel Committee on Banking Supervision, The Basel Committee’s Response to the Financial Crisis: Report to the G20, 2010, 8, http://www.bis.org/publ /bcbs179.pdf. 24. Guidance on New Regulatory Standards, 2011. 25. Nicholas C. Hope, James Laurenceson, and Fengming Qin, “The Impact of Direct Investment by Foreign Banks on China’s Banking Industry,” Working paper No. 362, Stanford Center for International Development, 2008, 26. 26. CBRC, Annual Report 2008, Beijing, 2009, 16. 27. Rules for Implementing the Regulations of the People’s Republic of China on Administration of Foreign-Funded Banks, s46. 28. Laws of People’s Republic of China on Banking Regulation and Supervision, s15. In some jurisdictions, regulators’ rule-making power is confined to implementing statutory objectives. See section 2 of Financial Services and Markets Act, 2000 (UK). 29. Rules on Auto Loans 2004, CBRC, Beijing. 30. Guidance on the Directors’ Performance Appraisal of Commercial Banks, CBRC, Beijing, 2010. 31. Ibid., ss31, 32. 32. Notice on Operational Risk Control, CBRC, Beijing, 2005. 33. Pricewaterhousecoopers, “Foreign Banks in China,” 60. 34. Qinghua Song, “Government’s Role in the Reform of Banking System: Evidence from Chinese State-Owned Commercial Banks,” Northeast Region Decision Science Institute, Beijing, 2008. 35. Alicia Garcia-Herrero, Sergio Gavila, and Daniel Santabarbara, “What Explains the Low Profitability of Chinese Banks,” Bank of International Settlements, 2007. NOTES 177

36. CBRC, Annual Report 2009, Beijing, 2010, 13. 37. Razeen Sappideen and Ling Ling He, “Observations on the Australia-China Free Trade Agreement Negotiation Process,” Australian Business Law Review 38 (2010): 257. 38. Thomas Achhorner et al., “Banking on China: Successful Strategies for Foreign Entrants,” The Boston Consulting Group, 2006, 8. 39. Hu Feng, “Kua Guo Yin Hang Ye Bing Gou Du Wo Guo Yin Hang Ye Fa Zhang de Ying Xiang” [The Impact of Mergers of Multinational Banks on China’s Banking Sector], Jang Xi Xing Zheng Xue Yuan Xue Bao [Journal of Jiang Xi Administration College] 2 (2003): 67. 40. M. K. Leung, T. Young, and D. Rigby, “Explaining the Profitability of Foreign Banks in Shanghai,” Managerial and Decision Economics 25 (2003): 15. 41. “Jin Yi Bu Fa Hui Xian You Zhong Xiao Shang Ye Yin Hang de Zuo Yong” [Commercial Banks in County Economies], CBRC, Beijing, 2002. 42. Pricewaterhousecoopers, “Foreign Banks in China,” 1. 43. KPMG, “Retail Banking in China: New Frontiers,” 2007, 20, http://www. amcham-shanghai.org/NR/rdonlyres/022BF82A-5771–4C28-A8BE-4417- D0C11A20/7439/retailBanking_China.pdf. 44. Pricewaterhousecoopers, “Foreign Banks in China,” 7. 45. Wang Zhao Xing, “Zong Jie Guo Nei Wai Cheng Gong Jing Yan Wan Shan Wai Zi Yin Hang Jian Guan Ti Xi” [Drawing Lessons on Domestic and International Experience, Improving Regulatory System on Foreign Banking], CBRC, Beijing, 2007, 5. 46. CBRC, Annual Report 2006, Beijing, 2007, 31; CBRC, Annual Report 2007, Beijing, 2008, 31; CBRC, Annual Report 2008, 31; CBRC, Annual Report 2010, Beijing, 2011, 31; and CBRC, Annual Report 2011, Beijing, 2012, 31. 47. Dai Xiang Rong, “Gai Jin Jin Rong Fu Wu Zhi Chi Guo Qi Gai Ge He Fa Zhan” [Improving Financial Services Supporting SOE Reform and Development], Speech delivered at the Zai Zhong Guo Ren Ming Yin Hang Fen Hang Hang Zhang Ji Du Lie Hui Shang Jiang Hua [Meeting of Branch Managers of the People’s Bank of China], 1999. 48. State Council, Wen Zong Li Da Ji Zhe Wen [Premier Wen Answers Questions Put to Him by the Media], Beijing, 2009, http://www.gov.cn/2009lh /content_1259224.htm at February 10, 2011. 49. Chang Youling, Zhong Xu, and Zheng Gailing, “Wo Guo Di Fang Zheng Fu Rong Zi Ping Tai Cun Zai De Wen Ti Ji Dui Ce” [Problems and Solutions for Local Government Financing Platforms], Jing Ji Zong Heng [Economy] 5 (2010): 52. 50. CBRC, Annual Report 2008, 116. 51. The CBRC promulgated nine pieces of supportive regulation, ranging from innovation to credit extension, particularly addressing rural financial institutions. Financial Support for the Agricultural Development and Its Production, 2008. 52. “Public Notice of the CBRC on Further Opening up China’s Banking Industry,” CBRC, Beijing, 2005. In 2005, another five western and northern cities were opened to foreign-funded financial institutions for this purpose. 178 NOTES

Whereas an application of a foreign bank to open a branch in the West would be granted quickly, an application to open a branch in the East takes longer. CBRC, Annual Report 2008, 61. 53. Notice of China Banking Regulatory Commission on Expanding the Pilot Program of Lowering Market Entry Threshold for Setting up Rural Banking Institutions, CBRC, Beijing, 2007 and CBRC, Annual Report 2007, 122. 54. “Cun Zheng Yin Hang Guan Li Zhan Xing Gui Ding” [Pilot Rules on Regulating County Banks], 2007, http://www.cbrc.gov.cn/govView_5B433B AF88B94712B5E392E3A621052D.html. 55. Governor Mark W. Olson, “Increased Availability of Financial Products and the Need for Improved Financial Literacy,” 2003, http://www.federalreserve. gov/boarddocs/speeches/2003/20030922/default.htm, and Lorenzo Alllio, Bruce Ballantine, and Dirk Hudig, “Achieving a New Regulatory Culture in the European Union An Action Plan,” Working Paper No. 10, European Policy Centre, 2004, 6. 56. Ajai Nair and Renate Kloeppinger-Todd, “Reaching Rural Areas with Financial Services: Lessons from Financial Cooperatives in Brazil, Burkina Faso, Kenya, and Sri Lanka,” The World Bank, 2007, 2. 57. Susan Krause Bell and Howard Chao, The Financial System in China: Risks and Opportunities Following the Global Financial Crisis (Washington, DC: Promontory Financial Group, 2010), 7. 58. Ibid., 8. 59. James Barth, Gerard Caprio, and Ross Levine, Rethinking Bank Regulation: Till Angels Govern (Cambridge: Cambridge University Press, 2006), 309. 60. CBRC, Shanghai Yin Jian Ju Zhi Dao Xia Nei Ji Gou Xi Hu luo Shi [Shanghai CBRC Bureau Implements Rules], Beijing, 2013, http://www.cbrc.gov.cn /chinese/home/docView/9E79A9669825411899D2961EEC2A7AC2.html, and CBRC, Ji Ji Tui Jing Z hong Guo Y in H ang Ye Z huan X in Fa Z han [Pushing China’s Banking Sector’s Structural Development], Beijing, 2013, http://www.cbrc .gov.cn/chinese/home/docView/BB6E98E73A6E408BA7F382047CE42879 .html. 61. CBRC, Guan Yu Jia Qiang Shang Ye Xing Fang Di Chan Xin Dai Guan Li de Tong Zhi [Notice on Credit Regulation Extending to Real Estate Industry], Beijing, 2007, http://www.cbrc.gov.cn/chinese/home/docView/20070927445 21063F1480ADFFF0418047E498500.html. 62. Xinhua, Shanghai Yin Jian Ju Ju Zhang Liao Ming: Fang Di Chan Dai Kuan Feng Xian Ke Kong [Shanghai CBRC Bureau Governor Liao Ming: Credit Risk in Real Estate Industry], Beijing, 2011, http://news.xinhuanet.com /fortune/2011–06/23/c_121576353.htm. 63. Xinhua, Yin Hang Ye Zhi Fu Tou Cun Cong Yu Liu Dong Xing Zong Liang Bu Duan Que [Ample Liquidity in China’s Banking Sector], Beijing, 2013, http:// news.xinhuanet.com/fortune/2013–06/29/c_116338757.htm. 64. PBoC, He Li Tiao Jie Liu Dong Xing Wei Hu Huo Bi Shi Chang Wen Ding [Adjust the Liquidity and Maintain the Stability of the Monetary Market], Beijing, 2009, http://www.pbc.gov.cn/publish/goutongjiaoliu/524/2013/2013 0625182009056961206/20130625182009056961206_.html. NOTES 179

65. Rules for Implementing the Regulations of the People’s Republic of China on Administration of Foreign-Funded Banks. 66. “Resolution Concerning the Strengthening Legal Interpretative Work,” State council, Beijing, 1981. 67. CBRC, What Is the CBRC, Beijing, 2003, http://www.cbrc.gov.cn/chinese /info/yjhjj/index.jsp. 68. “Fa Lu Gong Zuo Gui Ding” [Rules on the China Banking Regulatory Commission Rule-making Work], 2005, http://www.gov.cn/ziliao/flfg/2005– 12/01/content_114895.htm, s11. 69. CBRC, Annual Report 2007, 60. 70. CBRC, Annual Report 2006, 43. 71. Eugenio Cerutti and Giovanni Dell’ Ariccia, “How Banks Go Abroad: Branches or Subsidiaries?” Journal of Banking & Finance 31 (2007): 1670. 72. CBRC, Annual Report 2006, 43. 73. Luo Ping, “What Regulatory Policies Work for Emerging Markets?” Asian Development Bank Institute, Tokyo, 2011, http://www.adbi.org /files/2011.02.09.wp265.regulatory.policies.work.emerging.markets.pdf. 74. Guidelines on Fixed Assets Loans, CBRC, Beijing, 2009. 75. Ibid., s25. 76. Ping, “What Regulatory Policies Work for Emerging Markets?” and CBRC, Annual Report 2006, 58. 77. CBRC, Annual Report 2007, 112. 78. CBRC, Annual Report 2009, 8. 79. CBRC, Annual Report 2007, 72. 80. Guidelines on the Implementation of the New Basel Accord by China’s Banking Sector, CBRC, Beijing, 2007. 81. “Shang Ye Yin Hang Zi Ben Chong Zu Lu Guan Li Ban Fa” [Rules Governing Capital Adequacy of Commercial Banks], 2004, http://www.cbrc.gov.cn/gov View_27FD2584E264479B9650B6F64BC0C8EC.html, s32. 82. Guidelines on Market Risk Management of Commercial Banks, CBRC, Beijing, 2005, ss19, 20. 83. The basic indicator approach, the standardized approach, and advanced measurement approaches. 84. Guidelines on Market Risk Management of Commercial Banks, s13. 85. Qimeng Han, “New Regulatory Developments in China’s Derivatives Markets,” China Law & Practice 34 (February 2007): 36. 86. Guidance on Commercial Banks Financial Innovation, CBRC, Beijing, 2006, ss14–ss17. 87. Ibid., s3. 88. Note that derivative business was almost shut down in the wake of GFC. Pricewaterhousecoopers, “Foreign Banks in China,” 30. 89. Window Guidance played a major role in Japan in the past, and its effectiveness was undermined by financial liberalization in the 1980s. See Tomoyuki Fukumoto, “Effectiveness of Window Guidance and Financial Environment In light of Japan’s Experience of Financial Liberalization and a Bubble Economy,” Bank of Japan Review, Tokyo, 2010. 180 NOTES

90. “Gu Fen Zhi Shang Ye Yin Hang Jian Guan Gong Zuo Zhong Ji Zhong Zhuan Men Jian Guan Shou Duan Ji Qi Yun Zuo Qing Kuang de Jie Shao” [Regulatory Measures in Regulating Commercial Banks], 2007, http://www .cbrc.gov.cn/chinese/home/jsp/docView.jsp?docID=775. 91. Ibid. 92. Michael Geiger, “Instruments of Monetary Policy in China and Their Effectiveness: 1994–2006,” Paper presented at the United Nations Conference on Trade and Development, 2008. 93. Xinhua, Yin Jian Hui Jin Ji Chuang Kou Zhi Dao [The CBRC’s “Window Guidance” on Bank Loans], Beijing, 2009, http://news.xinhuanet.com /fortune/2009–06/24/content_11590408.htm. 94. CBRC, Annual Report 2007, 53. 95. Ibid., 64. 96. “Zhi Chi Sheng Zhu Sheng Chan Weng Ding Shi Chang Gong Ying” [Guidelines on Supporting Pork Production and Supply], 2007, http://www .cbrc.gov.cn/chinese/home/jsp/docView.jsp?docID=20070814565F0547DF C55E39FF4AF80867AA8900. 97. Gu Fen Zhi Shang Ye Yin Hang Jian Guan Gong Zuo Zhong Ji Zhong Zhuan Men Jian Guan Shou Duan Ji Qi Yun Zuo Qing Kuang de Jie Shao [Regulatory Measures in Regulating Commercial Banks]. 98. Kenneth A. Bamberger, “Regulation as Delegation: Private Firms, Decisionmaking, and Accountability in the Administrative State,” Duke Law Journal 56 (2006): 387. 99. In China, some banks are sophisticated in risk management whereas some banks experience difficulties in establishing risk management procedures. See Ping, “What Regulatory Policies Work for Emerging Markets?,” 6. 100. Jiang Ding Zhi, Zhun Que Ba Wo Guo Nei Wai Jing Ji Jin Rong Xin Xing Shi, Tui Dong Wo Guo Yin Hang Ye Ke Xue Fa Zhan [Understanding National and International Financial Affairs, Developing the National Banking Sector], CBRC, Beijing, 2008, http://www.cbrc.gov.cn/chinese/home/jsp /docView.jsp?docID=20080121FBCFC879C4E50C58FFF32AC537AE6600 101. The Banker, “Zhong Guo Chuang Kou Zhi Dao de You Xiao Xing Yu Jing Rong Huan Jing,” [The Effectiveness of China’s Window Guidance and Financial Environment], Ying Hang Jia [The Banker] 38 (December 2010): 33–36. 102. National Audit Office of the People’s Republic of China, Report on Auditing Regarding Central Government Budget in 2009, Beijing, 2010, http://www .audit.gov.cn/n1992130/n1992150/n1992591/2526765.html. 103. Pricewaterhousecoopers, “Foreign Banks in China,” 64. 104. CBRC, Annual Report 2006, 13. 105. Notice on Further Strengthening the Risk Management of Derivative Product Transactions between Banking Financial Institutions and Institutional Clients, 2009. 106. Ibid., s2. 107. Ibid., s12. NOTES 181

4 Regulating the Entry of Foreign Banks

1. David B. Humphrey, “Why Do Estimates of Bank Scale Economies Differ,” Economic Review 76, no. 5 (September–October 1990): 38. 2. M. K. Leung, D. Rigby, and T. Young, “Entry of Foreign Banks in the People’s Republic of China: A Survival Analysis,” Applied Economics 35 (2003): 30. 3. Ibid. 4. Chinese-foreign joint venture is also available as a market entry vehicle. However, in view of its limited impact, we will not touch on this area. As at the end of 2009, there were two joint ventures operating in China. 5. They were HSBC, the Chartered Bank, the Bank of East Asia, and the Overseas Chinese Bank. Please see Yang Xin Huang, “Revamping the Legal Framework for the Chinese Banking System: A Critical Examination,” (London : London Institute of International Banking, Finance & Development Law in cooperation with International Financial Law Unit, Centre for Commercial Law Studies, Queen Mary & Westfield College, University of London, 1996), 6. 6. Zhu Xin Qiang, “The Pace Quickens,” Paper presented at Bankers Association for Finance and Trade’s 14th Annual Conference on International Trade, Nottingham, 2004. 7. William Byrd, China’s Financial System: The Changing Role of Banks (Boulder, CO: Westview Press, 1983), 558. 8. Shujie Yao et al., “WTO Challenges and Efficiency of Chinese Banks,” Applied Economics 39, no. 5 (2007): 629. 9. Rules on Overseas Chinese Financial Institutions Setting up Representative Offices in PRC, State Council, Beijing, 1983, s2. 10. Donald Clark, Peter Murrell, and Susan Whiting, “The Role of Law in China’s Economic Development,” in Loren Brandt and Thomas G. Rawski (eds.), China’s Great Economic Transformation (New York: Cambridge University Press, 2008), 381. 11. Interim Regulations of the PRC Concerning the Control of Representative Offices of Foreign Enterprises, State Council, Beijing, 1980, s1; and Rules on Overseas Chinese Financial Institutions Setting up Representative Offices in PRC, s1. 12. Rules on Foreign Banking Institutions Establishing Representative Offices in China, State Council, Beijing, 1991, and Rules on Foreign Banking Institutions Establishing Representative Offices in China, State Council, Beijing, 1992, s8. 13. Rules on Foreign Banking Institutions Establishing Representative Offices in China, 1992, s1. 14. Rules on Foreign Banking Institutions Establishing Representative Offices in China, State Council, Beijing, 2002, s1. 15. Ibid., ss11, 12. 16. Notice Regarding Regulations of the PRC on Administration of Foreign-Funded Banks, CBRC, Beijing, 2006. 17. Regulations of the People’s Republic of China on Administration of Foreign- Funded Banks, CBRC, Beijing, 2006, s24. 182 NOTES

18. Qing Lu, Long-Term Commitment, Trust and the Rise of Foreign Banking in China (Hull, UK: University of Hull, 2007), 220. 19. M. K. Leung and Ricky Y. K. Chan, “Are Foreign Banks Sure Winners in Post-WTO China?” Business Horizons 49 (2006): 221, 233. 20. Robert L. Heinkel, “The Structure of International Banking,” Journal of International Money and Finance 11, no. 3 (1992): 252. 21. McKinsey & Company, “Bank Branches That Meet Customer Needs,” The McKinsey Quarterly, August 2007, 1. 22. Yu Xiang, “Wo Guo Wai Zi Yin Hang Fa Zhan Wen Ti Yu Dui Ce Si Kao” [Problems and Issues Related to Foreign Banks Development in China], Xin Jiang Jin Rong [Xin Jiang Finance] 39, no. 2 (2006): 39. 23. Regulations on Foreign Banks and Joint Venture in Special Economic Zones, State Council, Beijing, 1985 and Regulations of Shanghai’s Foreign Financial Institutions and Joint Ventures, State Council, Beijing, 1990. At the end of May 1995, the People’s Bank of China allowed foreign banks to establish branches in Beijing. See Qing Lu and John Dewhurst, “Factors Influencing the Growth of Foreign Banks’ Branches in China,” Journal of Contemporary China 16, no. 52 (2007): 518 24. Laws on Wholly Foreign-Owned Enterprises, 1986, s1 and C. L. Kwong Charles, “From Commercialization to WTO Accession What Lies Ahead for China’s Banking Reform?” The Chinese Economy 42, no. 5 (2009): 8. 25. Regulations of Shanghai’s Foreign Financial Institutions and Joint Ventures, State Council, Beijing, 1990, s20. 26. Regulations on Foreign Banks and Joint Venture in Special Economic Zones, 1985. Shenzheng, Zuhai, Xiamen, and Hainan were nominated. Shanghai was nominated by the Regulations of Shanghai’s Foreign Financial Institutions and Joint Ventures, 1990. 27. Jonathan R. Macey, Geoffrey P. Miller, and Richard S. Carnell, Banking Law and Regulation, 3rd ed. (New York: Aspen Publishers, 2001), 346. 28. As a consolidated piece of 51 provisions the legislation was concerned with foreign bank entry requirements and procedures. 29. Regulations of the PRC Governing Financial Institutions with Foreign Capital, State Council, Beijing, 1994, s17. 30. Lu and Dewhurst, “Factors Influencing the Growth,” 518. Also see Regulations on Foreign Financial Institutions in Pudong, Shanghai to Conduct Renminbi Business in the Experimental Work, 1996 and Notice on the Expansion of Foreign Banks Renminbi Business in Shanghai and Shenzhen, State Council, Beijing, 1999. In August 1998, the People’s Bank of China allowed Shenzhen to be the second city where foreign financial institutions could conduct RMB business, and Notice on the Expansion of Foreign Banks RMB Business in Shanghai and Shenzhen made a legislative breakthrough in allowing foreign branches to undertake local currency business. In the form of pilot rules, the 1996 regulations provided that foreign branches could conduct RMB service between and only with foreign entities and foreign individuals within Pudong, Shanghai. Furthermore, the 1999s Notice aimed to relax the NOTES 183

restrictions on foreign branches conducting local currency business in terms of customers’ geographic limitation and the size of RMB business (Notice on the Expansion of Foreign Banks RMB Business in Shanghai and Shenzhen, 1999, s1). Under this notice, foreign branches were able to conduct local currency business with foreign entities and individuals, without geographic restrictions. 31. Regulations of the PRC Governing Financial Institutions with Foreign Capital, 1994, s1; Regulations of Shanghai’s Foreign Financial Institutions and Joint Ventures, 1990, s1; and Regulations on Foreign Banks and Joint Venture in Special Economic Zones, State Council, Beijing, 1985, s1. 32. Yi Gang, “Jia Ru WTO Zhong Guo Jing Rong Ye Gai Ge” [WTO and China’s Financial Reform], (Beijing: PBoC, 2002), 1. 33. Charles, “From Commercialization to WTO Accession,” 10. 34. Regulations of the PRC Governing Financial Institutions with Foreign Capital, State Council, Beijing, 1994. 35. To facilitate its operation, the People’s Bank of China issued rules to accom- modate the implementation of this legislation. The People’s bank of China, Implementation Rules of Regulations of the PRC Governing Financial Institutions with Foreign Capital, PBoC Beijing, 2002. 36. Under the WTO agreement, geographic and client restrictions over foreign bank operations were not permitted. For local currency business, there was to be a phasing-out period for geographic and client restriction. See World Trade Organization, Report of the Working Party on the Accession of China, 2001, 34, http://unpan1.un.org/intradoc/groups/public/documents/apcity/ unpan002144.pdf. 37. Regulations of the PRC Governing Financial Institutions with Foreign Capital, State Council, Beijing, 1994, s7. 38. Ibid. 39. Due to lack of restriction of this kind, foreign branches in China were entitled to conduct retail and wholesale local currency business at the same time. 40. The 2001 Notice nominated Shanghai, Shenzhen, Tianjing, and Dalian; 2002 Notice nominated Guangzhou, Qindao, Zhuhai, Nanjing, and Wuhan; 2003 Notice nominated Jinan, Fuzhou, Chengdu, and Chongqing; 2004 Notice nominated Kunming, Beijing, Xiamen, Shengyang, and Xian; 2005 Notice nominated Shantou, Ningbo, Haerbin, Changchun, Lanzhou, Yinchuan, and Nanning. These five notices were primarily concerned with gradually reduc- ing geographic barriers. Each notice nominated cities for foreign branches’ further expansion. In addition, they also encompassed regulatory change regarding the scope of local currency business. In accordance with the People’s Bank of China’s 2001 notice, foreign financial institution’s RMB currency business was extended to wholesale and retail business (The People’s Bank of China, Notice No. 1, 2001). However, contrary to the 2001 notice, the CBRC’s 2003 notice was confined local currency dealings to wholesale business (The CBRC, Notice No. 2, 2003). In a future development, under a CBRC’s 2004 notice, local currency business scope was left entirely to interpretation as the 184 NOTES

confinement either to wholesale or retail was not specified. (The CBRC, “Jin Yi Bu Du Wai Kai Fang Yin Hang Xiang Guang Shi Xiang de Gong Gao Nov 2004” [Further Opening Up the Banking Sector Beijing, (2004)]). 41. Regulations of the PRC Governing Financial Institutions with Foreign Capital, State Council, Beijing, 2002, s1. 42. Chapter 4 of the Regulations of the PRC Governing Financial Institutions with Foreign Capital, 2002. Capital adequacy ratio is an indicator that the mini- mal level of capital for a bank, considered as a necessary or desirable cushion against the risks to which a bank is exposed. 43. Basel Committee on Banking Supervision, “Core Principles for Effective Banking Supervision,” 1997, 23. 44. Regulations of the People’s Republic of China on Administration of Foreign- Funded Banks. 45. Rules for Implementing the Regulations of the People’s Republic of China on Administration of Foreign-Funded Banks, CBRC, Beijing, 2006, s127. 46. Regulations of the People’s Republic of China on Administration of Foreign- Funded Banks, s6. 47. Chapter 4 of the Regulations of the Republic of China on Administration of Foreign-Funded Banks, CBRC, Beijing, 2006 is devoted to the scope of regulatory supervision. 48. Regulations of the People’s Republic of China on Administration of Foreign- Funded Banks, s54. 49. Ibid., s65. 50. Basel Committee on Banking Supervision, “Core Principles,” s37. 51. Peter Lunt and Sonia Livingstone, “Regulation in the Public Interest,” Consumer Policy Review 17, no. 2 (2007): 2. 52. Inwon Song, “Foreign Bank Supervision and Challenges to Emerging Market Supervisiors,” IMF Working Paper 4/82, 2004. 53. Leung and Chan, “Are Foreign Banks Sure Winners,” 228. 54. Babu G. Baradwaj, Susan Flaherty, and Joanne Li, “Are Chinese Banks Positioned to Compete in the Post-WTO Environment?” The Chinese Economy 41, no. 2 (2008): 73. 55. Leung, Rigby, and Young, “Entry of Foreign Banks,” 30. 56. CBRC, Annual Report 2006, CBRC, Beijing, 2007, 43. 57. CBRC, Zhong Guo Yin Hang Ye Dui Wai Kai Fang Bao Gao [Report on Opening Up of Chinese Banking Sector], Beijing, 2007, 1. 58. Regulations of the PRC Governing Financial Institutions with Foreign Capital, State Council, Beijing, 1994. 59. Regulations of the PRC Governing Financial Institutions with Foreign Capital, State Council, Beijing, 2002, s2. 60. At the outset, the Regulations (2006) introduce the concept of a wholly foreign-funded bank; a bank funded solely by a foreign bank or jointly with any other foreign financial institutions. However, the term “locally incorporated foreign banks” is not specifically defined in this regulation. Pursuant to section 2 of the Regulations (2006), a wholly foreign-funded bank is recognized NOTES 185

as one institutional form on equal footing with a Chinese-foreign joint venture and a branch of a foreign bank all coming under the umbrella of foreign- funded banks. Given that sections 8 and 9 of the Regulations (2006) further speculate on the establishment and registration of a wholly foreign-funded bank, it is apparent for the proper operation of these sections that the ref- erence to “wholly foreign-funded banks” is to be interpreted as including “locally incorporated foreign banks.” This interpretation is supported by the CBRC’s annual report that clearly bestows on “wholly foreign-funded banks” a wider operation in its description of institutional forms, extending to locally incorporated banks, and foreign bank branches. See CBRC, Annual Report 2006, 38; CBRC, Annual Report 2008, Beijing, 2009, 47; CBRC, Annual Report 2009, Beijing, 2010, 38; and Zhou Dong Tao, Zhong Guo Jing Ji Fa Zhan He Ti Zhi Gai Ge Bao Gao (1978–2008) [Report on China’s Financial development and Reform 1978–2008] (She Hui Ke Xue Wen Xian Chu Ban She [Social Science Academic Press], 2008), 235. 61. Thorsten Beck and Diane Coyle, Bailing Out the Banks: Reconciling Stability and Competition (London: Centre for Economic Policy Research, 2010), 70. 62. James Barth, Gerard Caprio, and Ross Levine, Rethinking Bank Regulation: Till Angels Govern (Cambridge: Cambridge University Press, 2006), 113. 63. Alan Bollard, “Being a Responsible Host: Supervising Foreign-Owned Banks,” Address to the Federal Reserve Bank of Chicago Conference, Systemic Financial Crises—Resolving Large Bank Insolvencies, 2004. 64. Eva H. G. Hupkes, “The Legal Framework for Foreign Bank Entry,” Banks and Bank Systems 1, no. 4 (2006): 5. 65. Dietrich Domanski, “Foreign Banks in Emerging Market Economies: Changing Players, Changing Issues,” BIS Quarterly Review, December 2005, 75. 66. Beck and Coyle, Bailing Out the Banks, 71. 67. CBRC, Annual Report 2006, 12. 68. Regulations of the People’s Republic of China on Administration of Foreign- Funded Banks, s1. 69. World Trade Organization, Report of the Working Party, 66. 70. Regulations of the People’s Republic of China on Administration of Foreign- Funded Banks, s10. 71. Ibid., ss29, 31. 72. CBRC, ibid., n. 1, 2. 73. CBRC, Annual Report 2009, 38. 74. CBRC, Annual Report 2006, 44. 75. James Barth, Jie Gan, and Daniel E. Nolle, Global Banking Regulation and Supervision: What Are the Issues and What Are the Practices? (New York: Nova Science Publishers, 2009), 111. 76. Domanski, “Foreign Banks in Emerging Market Economies,” 75. 77. Olena Havrylchyk, “Inherited or Earned? Performance of Foreign Banks in Central and Eastern Europe,” IMF Working Paper 10/4, 2010, 3. 78. World Bank, “Investing across Borders 2010,” 2010, 8, http://iab.worldbank.org/. 186 NOTES

79. Tianjin Economic Development Zone Bureau, Information, 2002, http:// www.investteda.org/upfiles/2003917164710110.pdf. 80. HSBC, About HSBC China—History, London, 2000, http://www.hsbcnet. com/cn/about-hsbc-china/history.html. 81. World Bank Group International Finance Corporation, IFC Invests $27 Million in Nanjing City Commercial Bank, July 20, 2010, http://www.ifc.org /ifcext/eastasia.nsf/Content/SelectedPRChina?OpenDocument&UNID=C8 7E81E5992C4EF685256B13005C5DF6. 82. Tianjin Economic Development Zone Bureau, Information. 83. XiaoPing Dai and Yishu Fu, “Zhong Guo Yin Hang Ye Yin Jin Wai Zi Yin Hang De Ruo Gan Si Kao” [Chinese Banking Sector Attracts Foreign Banks], Shanghai Jin Rong Xue Yuan Xue Bao [Journal of Shanghai Finance] 4 (2006): 6. 84. Hu Feng, “Kua Guo Yin Hang Ye Bing Gou Du Wo Guo Yin Hang Ye Fa Zhang de Ying Xiang” [The Impact of Mergers of Multinational Banks on China’s Banking Sector], Jang Xi Xing Zheng Xue Yuan Xue Bao [Journal of Jiang Xi Administration College] 2 (2003): 67. One objective of banking reforms is to create a competitive commercial banking sector. See Xiao Qing Fu and Shelagh Heffernan, “The Effects of Reform on China’s Bank Structure and Performance,” Journal of Banking & Finance 33 (2009): 40. 85. “Jin Yi Bu Fa Hui Xian You Zhong Xiao Shang Ye Yin Hang de Zuo Yong” [To Further Enable Small and Medium Size Banks], State Council, Beijing, 2002. 86. M. K. Leung, T. Young, and D. Rigby, “Explaining the Profitability of Foreign Banks in Shanghai,” Managerial and Decision Economics 25 (2003): 15. 87. Javed Hamid and Stoyan Tenev, “Transforming China’s Banks: The IFC’s Experience,” Journal of Contemporary China 17, no. 56 (2008): 449–450. 88. “Regulations on Overseas Financial Institutions Shareholding Chinese Financial Institution,” State council, Beijing, 2003, s9. 89. Ibid., s5. 90. “Li Yong Wai Zi Shi Yi Wu Gui Hua” [The 11th Five Years Plan on Attracting Foreign Capital], State council, Beijing, 2006. 91. “Yin Jian Hui Guan Yu Zhong Guo Yin Hang Zhong Guo Jian She Yin Hang Chong Zu Gai Zhi Shi Chang Zhun Ru Gong Zuo Zhi Dao Yi Jian” [Guidelines Concerning Reconstructuring the Bank of China and the Construction Bank of China], 2004, s2, 7. 92. Timothy Wong, Asian Tour Capability Transfer Program (CTP), 2006, http:// www.commbank.com.au/about-us/shareholders/pdfs/2006-asx/20060308 -Capability-Transfer-Program.pdf. 93. “Zhong Zi Shang Ye Yin Hang Xing Zheng Xu Ke Shi Xiang Shi Shi Ban Fa” [Rules on Chinese Commercial Banks Administrative Licensing], State Council, Beijing, 2006, s7. 94. Colin Hawes and Thomas Chiu, “Foreign Strategic Investors in the Chinese Banking Market: Cultural Shift or Business as Usual,” Banking & Finance Law Review 22, no. 2 (2007): 12. NOTES 187

95. The Economist, China’s Financial System Red Mist Who Matters in the World’s Second-Largest Financial System Is Barely Understood, London, 2010, http://www.economist.com/node/15453014. 96. The Economist, Consumer goods: The Mystery of the Chinese Consumer, London, 2011, http://www.economist.com/node/18928514. 97. Within an agreed lockup period, the stake is not transferable. The purchase price was $3 billion in 2005, see Bank of America, Annual Report 2005, Charlotte, NC, 2006, 6. It was sold in two batches: $2.8 billion in 2008 (see Bank of America, Annual Report 2008, Charlotte, NC, 2009, 81) and $10.1 billion in 2009 (see Bank of America, Annual Report 2009, Charlotte, NC, 2010, 53). 98. Fu and Heffernan, “The Effects of Reform,” 40. 99. “Guan Yu Zheng Qiu Yin Hang Kong Gu Gu Dong Jian Guan Ban Fa (Zheng Qiu Yi Jian Gao) Yi Jian de Gong Gao” [Notice on Public Consultation on Draft Regulations on Bank Controlling Shareholders], 2008, http://www. cbrc.gov.cn/chinese/home/jsp/docView.jsp?docID=20080327641D62C67E 628772FFEF9C79E79EC600. 100. Hong Liang Zhang, Kong Gu Zhong Guo Yin Hang Jie Nan Di Yi Dan [Disaster for Chinese Banking Sector], Beijing, 2009, http://blog.sina.com. cn/s/blog_4b02a21a01009h6n.html. 101. Regulation of Foreign Investment in Australia, Canberra, 2011, 1, www .austrade.gov.au/ . . . /Regulation-of-Foreign-Investment-Guide.pdf. 102. There is a counterargument that China does not need capital. See Hawes and Chiu, “Foreign Strategic Investors in the Chinese Banking Market,” 11. 103. The Australian, ANZ’s Bid to Buy Korea Exchange Bank Warrants Caution, August 18, 2010, http://www.theaustralian.com.au/business/city-beat /anzs-bid-to-buy-korea-exchange-bank-warrants-caution/story-e6frg9no -1225906542612. 104. Yao et al., “WTO Challenges,” 641. 105. Hawes and Chiu, “Foreign Strategic Investors in the Chinese Banking Market,” 13. 106. James Laurenceson and Feng Ming Qin, “Has Minority Foreign Investment in China’s Banks Improved Their Cost Efficiency?” China & World Economy 16, no. 3 (2008): 21. A. Berger, I. Hasan, and M. Zhou, “Bank Ownership and Efficiency in China: What Will Happen in the World’s Largest Nation?” Journal of Banking & Finance 5, no. 16 (2007): 128–129. 107. Bollard, “Being a Responsible,” 1. 108. Ibid., 1. 109. Michael G. Roskin, National Interest: From Abstraction to Strategy, Report prepared for the US Army War College (Carlisle, PA: Strategic Studies Institute, US Army War College, 1994), 1. 110. Bank of America, Annual Report 2005, 6 and Bank of America, Annual Report 2008, 53, 81. 111. Bank of China, Annual Report 2008, Beijing, 2009, 66. Recent research, in the light of ICBC’s IPO in 2006, valued the shares of that bank at the time 188 NOTES

of offer at between 3 and 5 RMB, and the offer price was slightly more than 3 RMB. The question can be asked as to why the offer price was toward the lower end of the fair value range. See Franklin Allen, Jun Qian, and Mengxin Zhao, “The Initial Public Offering of the Industrial and Commercial Bank of China (ICBC),” The Wharton School, University of Pennsylvania, 2012, 21. 112. During fieldwork, the researcher noted that some Chinese banking experts and academics shared the same concern. 113. Xinhua, Yin Hang Jian Mai Lun Zu Ai Fa Zhan Dian Dao Hei Pai, Beijing, 2008, http://news.xinhuanet.com/comments/2008–07/10/content_8517923 .htm. 114. Xinhua, Liu Mingkang: Zhong Guo Guo You Yin Hang Bing Bu Cun Zai Jian Mai de Qing Kuang [Liu Mingkang: China’s State Owned Banks Were Not Sold Cheap], Beijing, 2005, http://news.xinhuanet.com/fortune/2005– 12/05/content_3878507.htm. 115. J. Hawkins and D. Mihaljek, “The Banking Industry in the Emerging Market Economies: Competition, Consolidation and Systemic Stability An Overview,” Bank of International Settlements, Paper No. 4, 2002, 28. 116. Ibid. 117. Liao Jian, “Guan Yu Kai Fang Cun Kuan Li Lu Shang Xian de Si Kao” [Thoughts on Liberalizing Deposit Interest Rates], Jing Rong Shi Chang [Financial Market] 10 (2011): 99. 118. “Cun Zhen Yin Hang Zu Jian Shen Pi Gong Zuo Zhi Yin” [Guidance for Application in Establishing County Banks], 2007, http://www.cbrc.gov.cn /chinese/home/docView/20070129EDCF06832AD8CE7CFF5077B3AD7B0 400.html. 119. Douglas W. Arner, Financial Stability, Economic Growth, and the Role of Law (New York: Cambridge University Press, 2007), 35. 120. The Federal Financial Institution Examination Council, Community Reinvestment Act, 1997, http://www.ffiec.gov/cra/. 121. Donald F. Vitaliano and Gregory P. Stella, “The Cost of Corporate Social Responsibility: The Case of the Community Reinvestment Act,” Journal of Productivity Analysis 23 (2006): 236. 122. Savescu Roxana Florenta, “The Challenges of Rural Lending-Risks and Costs,” 2008, 831, http://steconomice.uoradea.ro/anale/volume/2008/v3 -finances-banks-accountancy/151.pdf. 123. Jiangang Peng et al., “Regional Finance and Regional Disparities in China,” Australian Economic Papers 49, no. 4 (December 2010), http://www.uwa .edu.au/__data/assets/pdf_file/0003/37083/08_02_Peng_Groenewold _He_Li_Yi__forweb1.pdf. 124. Li Jun Feng and Wang Jian, “Dang Qian Zhong Guo Nong Cun Jin Rong Zu Zhi Ti X i Gai Ge de Si Lu” [Reform of China’s Rural Financial Organizations], Zong Guo Jing Ji Ping Lun [China’s Economy] 9, no. 6 (2009): 19–20. 125. Jiang Ding Zhi, Ren Zhen Zong Jie Jing Yan, Ji ji Kuo Da Shi Dian [Expansion of County Banking], CBRC, Beijing, 2007, http://www.cbrc.gov.cn/chinese /home/jsp/docView.jsp?docID=200711191F2660CB732CF607FFF9F14F87 CA1D00. NOTES 189

126. Those six provinces are Si Chuan, Qin Hai, Gan Su, Nei Meng Gu, Ji Lin, and Hu Bei. “Guan Yu Tiao Zheng Fang Kuan Nong Cun Di Qu Yin Hang Ye Jin Rong Ji Gou Zhun Ru Zheng Ce Geng Hao Zhi Chi She Hui Zhu Yi Xin Nong Cun Jian She de Ruo Gan Yi Jian” [Regarding Relaxing Policies Concerning Financial Institutions Entering Counties], CBRC, Beijing, 2006. 127. “Guan Yu Zuo Hao Xin Xing Nong Cun Jin Rong Ji Guan 2009–2011Zong Ti Gong Zuo An Pai You Guan Shi Xiang de Tong Zhi” [Notice on Planning 2009–2011 New Rural Financial Institutions], CBRC, Beijing, 2009. 128. The State Council, Yin Jian Hui Pi Zhun Guo Nei Shou Jia Wai Zi Cun Zhen Yin Hang Zai Hu Bei Sui Zhou Kai Ye [The China Banking Regulatory Commission Has Approved First Foreign Funded Bank in Hu Bei], State Council, 2007, http://www.gov.cn/gzdt/2007–12/14 /content_833863.htm. 129. Cai Jing [Finance], Wai Zi Yin Hang Xia Xiang Mo Pai Zhao [Foreign Banks’ County Banking], Shangdong, 2011, http://caijing.shangdu.com/bank /wzyh/2011/0609/2579.shtml. 130. CBRC, Guan Yu Jia Kuai Fa Zhan Xin Xing Nong Cun Jin Rong Ji Gou You Guan Shi Yi De Tong Zhi [Notice on Some Matters Regarding the Development of County Banks], Beijing, 2008, http://www.cbrc.gov.cn /govView_DFC1FB47FEA74B439AB2F35B36721D57.html. 131. China Banking Association, Working Group on Inclusive Finance in China, “Zhong Guo Cun Zheng Yin Hang Fa Zhan Yan Jiu” [Research on the Development of Village and Township Banks (VTBs) in China], 2011,15. 132. Li Ying, “Cun Zhen Yin Hang Si Nian Hui Gu Ji Zhan Wang” [Review of Rural Banks in Recent Four Years], Yin Hang Jia [Banker] 2 (2011): 108. China Banking Association, “Zhong Guo Cun Zheng,” 15. And Helen Wong, HSBC in China Presentation to Citi Global Financial Conference, London, 2012, 9. 133. CBRC, Xin Xing Nong Cun Jin Rong Ji Gou 2009–2011 Gong Zou An Pai [New Rural Financial Institutions 2009–2011], Beijing, 2009, http://www .cbrc.gov.cn/chinese/home/jsp/docView.jsp?docID=200907292C090D00B8 699284FF2DA6FE3A40AB00. 134. Ibid. 135. Liu Xiao Cun, HSBC County Bank, Beijing, 2009, http://www.chinavbf .com/show.asp?id=fenxi0_07090581958_14634&l=b. 136. “Cun Zheng Yin Hang Guan Li Zhan Xing Gui Ding” [Pilot Rules on Regulating County Banks], 2007, http://www.cbrc.gov.cn/govView_5B433 BAF88B94712B5E392E3A621052D.html. In accordance with Section 7, initial registered capital is no less than RMB 1,000,000 for a county bank in a county area. 137. Ministry of Finance, Cai Zheng Xian Yu Jing Rong Ji Gou She Nong Dai Kuan Zeng Liang Jiang Li Zi Jin Guan Li Ban Fa [Notice on Financial Incentives for Loans Made by County Financial Institutions in Rural Areas], Beijing, 2010, http://jrs.mof.gov.cn/zhengwuxinxi/zhengcefabu/201010 /t20101011_342157.html. 190 NOTES

138. “She Nong Xiao E Dai Kuan Li Xi Shou Ru Mian Zheng Ying Ye Shui” [Tax Concession on Small Loans in Rural Areas], 2010, http://www .mof.gov.cn/zhengwuxinxi/caizhengwengao/caizhengbuwengao2000 /caizhengbuwengao20007/200805/t20080519_21468.html. 139. Only 10% of local residents are in favor of county banks, see “Dui Qian Fa Da Di Qu Kai Ban Cun Zheng Yin Hang Wen Ti De Tiao Cha Yu Si Kao” [Developing County Banks in Less Developed Areas], 2007, http://www .chinavbf.com/show.asp?id=fenxi0_070622141051_97130&l=b. 140. Ma Jiu Jie, Di Ya Pin Ti Dai Ji Zhi Yu Nong Cun Jin Rong Chuang Xin [Collaterals and Rural Financial Innovation], China County Banking, Beijing, 2009, http://www.chinavbf.com/show.asp?id=fenxi0_08041591910 _76618&l=b. 141. Fan Shang Wen, “Cun Zhen Yin Hang Ba Li Zhi Fu Jie Suan Ye Wu Xian Zhuang Jie Shao,” [Introduction to County Banks’ Clearing and Settlement Services] at The 5th China County Bank Development Forum, July 5, 2012. 142. HSBC, HSBC to Become First International Bank in Rural China, London, 2007, http://www.hsbc.com/1/2/newsroom/news/2007/hsbc-to-become-first -international-bank-in-rural-china#top. 143. The Wall Street Journal, Banco Santander, China Construction Bank To Form Rural Bank JV, New York, 2011, http://online.wsj.com/article/BT-CO -20110327–701733.html. 144. Commonwealth Bank of Australia, Ao Zhou Lian Bang Yin Hang (Yi Yin) Cun Zhen Yin Hang [Commonwealth Bank of Australia’s Yi Yin County Bank], Shanghai, 2010, http://www.cbacountybank.com.cn/county-bank /yichuan-county-bank.html. 145. A Capability Transfer Program normally refers to a program where foreign banks provide Chinese banks with capabilities in certain business areas, such as information technology. See Wong, Asian Tour Capability.

5 Consumer Financial Regulation

1. William F. Shughart II and Fred S. McChesney, “Public Choice Theory and Antitrust Policy,” Public Choice 142 (2010): 390. 2. CBRC, Annual Report 2010, 2011, 27. 3. China Construction Bank, Yun Yong Ge Ren Zhen Xin Xi Tong You Hua Jin Rong Sheng Tai Huan Jing [Personal Credit System, Improving Financial Environment], Beijing, 2011, http://www.ccb.com/sd/20110715_1310713830 .html. 4. Feng Guo and Xuan Kang, “Fan Long Duan Shi Yu Xia de Jin Rong Zi Yuan Pei Zhi He She Hui Gong Ping” [Analysis Regarding Distribution of Financial Resources and Social Justice in the View of Anti-Monopoly], Fa Xu Za Zhi [Law Journal] 8 (2011): 37. 5. He Ying, “Gou Jian Mian Xiao Xiao Fei Zhe de Jin Rong Ji Gou Shuo Ming Yi Wu Gui Ze” [Establish Rules Financial Institutions’ Disclosing Obligations], Fa Xu [Law Journal] 7 (2011): 96. NOTES 191

6. Wang Bao Gang and Ma Yun Quan, “Lun Jin Rong Xiao Fei Zhe Quan Yi de Fa Lu Bao Hu, [Legal Protection of Financial Consumers], Jin Rong Fa Zhan Yan Jiu [Research on Financial Law] 7 (2010): 56. 7. Rules for Implementing the Regulations of the People’s Republic of China on Administration of Foreign-Funded Banks, 2006, s55. 8. Shang Ye Yin Hang Fang Di Chan Dai Kuan Feng Xian Guan Li Zhi Yin [Guidance on Risk Management of Real Estate Business], CBRC, Beijing, 2004. 9. He Wei Ping, “Banking Regulation in China: What, Why, and How?” Journal of Financial Regulation and Compliance 20, no. 4 (2012): 367–383. 10. Hong Peili, Banking Supervision in China, Beijing, 2004, http://www.afdc .org.cn/upload/24/downloads/s5.pdf. 11. Guidance on Commercial Banks Financial Innovation, CBRC, Beijing, 2006, s3. 12. Ibid., s38. 13. FSA, “The Turner Review: A Regulatory Response to the Global Banking Crisis,” London, 2009, 108. 14. Notice on Further Strengthening the Risk Management of Derivative Product Transactions between Banking Financial Institutions and Institutional Clients, CBRC, Beijing, 2009. 15. Ibid., s4. 16. Draft of Rules Regarding Commercial Banks Service Price, CBRC, Beijing, 2010, s29. 17. Ibid., s24. 18. Ibid. 19. Richard Posner, “Rational Choice, Behavioral Economics, and the Law,” Stanford Law Review 50, no. 5 (1998): 1575. “Bounded rationality” asserts that decision makers desire to act rationally, but that they sometimes fail because of human cognitive and emotional architecture. See Bryan D. Jones, “Bounded Rationality,” Annual Review of Political Science 2 (1999): 297. 20. Draft (2010) was put forward for public consultation and did not result in any enforceable rules. The CBRC’s public consultation process can be an area for further research. 21. Guidance on Commercial Banks Financial Innovation, s28. 22. Ibid., s30. 23. Toni Williams, “Empowerment of Whom and for What? Financial Literacy Education and the New Regulation of Consumer Financial Services,” Law & Policy 29, no. 2 (2007): 233; Julie Fround et al., “The Quiet Panic about Financial Literacy,” in L. Assassi, D. Wigan and A. Nesvetailova (eds.), Global Finance in the New Century: Beyond Deregulation (London: Palgrave Macmillan, 2006), 77. 24. Ben S. Bernanke, “Financial Innovation and Consumer Protection,” Speech delivered at the Federal Reserve System’s Sixth Biennial Community Affairs Research Conference, Washington, DC, April 17, 2009. 25. FSA, “The Turner Review,” 5. 26. J. Thomas Rosch, “Managing Irrationality: Some Observations on Behavioral Economics and the Creation of the Consumer Financial Protection Agency,” 192 NOTES

January 6, 2010, http://www.law.nyu.edu/ecm_dlv1/groups/public/@nyu _law_website__centers__center_for_law_economics_and_organization /documents/documents/ecm_pro_064259.pdf. 27. Charles Goodhart et al., Financial Regulation: Why, How and Where Now? (New York: Routledge, 1998), 5. 28. “Guan Yu Jin Qi Shanghai Di Qu Yin Hang Ge Ren Li Cai Shi Chang Xiao Shou Xing Wei de Fei Xian Ti Shi” [Risk Warning Concerning Personal Wealth Management Sale Practice in Shanghai Area], CBRC, Beijing, 2011. 29. “Shang Ye Yin Hang Li Cai Chan Pin Xiao Shou Guan Li Ban Fa” [Rules on Sale of Commercial Banks’ Personal Wealth Management Products],” CBRC, Beijing, 2011, s13. 30. Ibid., ss16, 18. 31. Ibid., s25. 32. Ibid., s9. 33. Ibid., s51(2). 34. FSA, “FSA Details the Enhanced Standards People Can Expect From All Investment Advisers,” 2009, http://www.fsa.gov.uk/library/communication /pr/2009/082.shtml. 35. Corporations Act 2001 (Australia), Part 7.7A. 36. “Corporations Amendment (Further Future of Financial Advice Measures), (Australia)” 2011, s 1.8. 37. CBRC, Annual Report 2009, CBRC, Beijing, 2010, 83. 38. CBRC, Annual Report 2010, 10. 39. Richard Sandlant, “Consumer Financial Protection: Future Directions,” 2011. 40. Hidehiko Sogano, Complementarities between Financial Inclusion, Financial Consumer Protection and Financial Education, http://www.oecd.org /dataoecd/21/58/48340945.pdf. 41. CBRC, Annual Report 2010, 95. 42. Ibid. 43. CBRC, 2010 Zhong Guo Yin Hang Ye Gong Zhong Jiao Yu Fu Wu Ri [2010 China’s Banking Sector Public Education Day], 2010, http://pub-edu.cbrc .gov.cn/pesw/info/gzjy/index.htm. 44. Zhang Ke, “Wan Shan Wo Guo Jin Rong Xiao Fei Zhe Jiao Yu Ti Xi de Yan Jiu Yu Si Kao” [Improving Financial Consumer Education], Jin Rong Fa Zhan Ping Lun [Financial Law Review] 8 (2011): 151. 45. CBRC, Mai Zhe Zi Fu [Caveat emptor], Beijing, 2008, http://www.cbrc.gov .cn/pesw/info/fxts/doc_view.jsp?docID=zqrs#a1. 46. Ibid. 47. Williams, “Empowerment of Whom and for What?,” 227. 48. CBRC, Wang Huan Qing Shu Ji Zai 2010 Nian Yin Hang Ye Gong Zhong Jiao Yu Ri Huo Dong Chou Bei Gong Zuo Hui Yi Shang de Jiang Hua [Speech by Party Secretary Wang Hua Qing at 2010 Banking Sector’s Public Education Day], 2010, http://www.cbrc.gov.cn/chinese/home/docView/2010101186371F 95B7013C89FF04BB31C1E7FA00.html. NOTES 193

49. CBRC, 2010 Nian Y in H ang Ye Gong Z hong Jiao Yu Ri H uo D ong Fang An [ Programs Regarding 2010 Public Education Day in Banking Sector], Beijing, 2010, http:// www.cbrc.gov.cn/govView_CDB4E2AC49E2417EBEB81C4A15FC13D2. html. 50. Ping An Bank, Liao Jie Yin Hang Li Cai [Understanding Wealth Management], Beijing, 2010, http://bank.pingan.com/jinrongjiaoyu/yinhanglicai.shtml. 51. Arnold S. Rosenberg, “Better Than Cash? Global Proliferation of Payment Cards and Consumer Protection Policy,” Columbia Journal of Transnational Law 44 (2006): 544. 52. Xinhua, Yin Hang Luan Shou Fei Zui Pa Ming Bai Zhang [Scrutinizing Bank Fees], Beijing, 2011, http://news.xinhuanet.com/comments/2011–07/08 /c_121640790.htm. 53. World Savings Banks Institute, “Good Practices for Financial Consumer Protection Consultative Draft by the World Bank,” Brussels, 2011, 1. 54. Interim Rules Regarding Commercial Banks Pricing, 2003, http://www.gov .cn/gongbao/content/2004/content_62956.htm, s7. 55. Ibid., s8. 56. Ibid., s9. 57. Ibid., s5. 58. He Wei Ping, “Banking Regulation in China.” 59. However, the Draft did not define these terms. It remains unclear how “government determined” differs from “government directed.” 60. Draft of Rules Regarding Commercial Banks Service Price, s11. 61. PBoC Xi’an Branch, “Dui Mu Qian Jin Rong Xiao Fei Zhe Tou Su de Xing Shi Fen Xi” [Analysis Regarding Consumer Financial Complaints], Xi Bu Jin Rong [Western Finance] 4 (2011): 10. 62. “Guan Yu Yin Hang Ye Jin Rong Ji Gou Mian Chu Bu Feng Fu Wu Shou Fei de Tong Zhi” [Notice Concerning Financial Institutions Abolishing Some Service Fees], 2011, http://www.cbrc.gov.cn/chinese/home/jsp/docView.jsp?d ocID=201103149ABBB381E0DF7113FFF220DC98EEF300. 63. “Shang Ye Yin Hang Fu Wu Jia Ge Guan Li Ban Fa (Zheng Qiu Yi Jian Gao)” [Public Consultation on Draft Rules Regarding Commercial Banks Service Price, 2012, http://www.cbrc.gov.cn/chinese/home/docView/51A6408E61B3 4787AEDD45F9C97FEAD4.html, s22. 64. Goodhart et al., Financial Regulation, 4. 65. Fee exemptions and concessions are readily available for disadvantaged groups in many jurisdictions, for instance, Australia. See ANZ, ANZ Personal Banking, Melbourne, 2008, http://www.anz.com/documents/au/feecharge /anz_personal_banking_account_fees_charges.pdf. 66. CBRC, Annual Report 2010, 95. This approach is widely taken by regulators in other jurisdictions. See in Hong Kong Monetary Authority, “Comparative Study on Banking Consumer Protection and Competition Arrangements in the UK, Australia and Hong Kong—Role of the Financial Regulator and Self- Regulation of Market Conduct,” 2001. 67. CBRC, Annual Report 2010, 95. 194 NOTES

68. Guidance on Commercial Banks Financial Innovation, s34. 69. Ibid., s63. 70. ASIC, Licensing: External and Internal Dispute Resolution Procedures, June 2001, http://www.asic.gov.au/asic/pdflib.nsf/LookupByFileName/DispRes _ppp.pdf/$file/DispRes_ppp.pdf. 71. China Construction Bank, Ke Hu Fu Wu [Customer Service], Beijing, 2008, http://www.ccb.com/cn/home/common/new_customer_service.html. 72. Xing Hui Qiang, “Chu Li Jin Rong Xiao Fei Jiu Feng de Xin Si Lu” [New Solutions to Financial Disputes], Xian Dai Fa Xue [Modern Law Science] 31, no. 5 (2009): 50. 73. There have been increasing numbers of consumer complaints in relation to credit card and wealth management products. See CBRC, Annual Report 2009, 83. 74. “Tou Su de Ji Ben Cheng Xu” [Procedures for Complaints Handling], 2010, http://pub-edu.cbrc.gov.cn/pesw/info/tstj/doc_view.jsp?docID=jbcx. 75. CBRC, Annual Report 2009, 82. 76. Randall Peerenboom and Xin He, “Dispute Resolution in China: Patterns, Causes and Prognosis,” East Asia Law Review 4, no. 1 (2009): 39. Financial consumers can assert their rights through litigation. The evidence suggests that Chinese financial consumers have started to resort to courts in resolving disputes with financial institutions. For example, the People’s Intermediate Court in Zheng Zhou City has set up an Adjudication Tribunal of Finance and an enforcement team. 77. CBRC, Jin Rong Xiao Fei Zhe Bao Hu de Gui Ji Shi Jian Yu Jie Jian [International Practice in Relation to Consumer Financial Protection], 2011, http://www .cbrc.gov.cn/chinese/home/docView/7E773A25554B454B910901D44560432 6.html. 78. CBRC, Annual Report 2009, 95. 79. Peili, Banking Supervision in China. 80. CBRC, 2010 Nian Nian Bao [2010 Annual Report], 2011, 77. 81. Neil Gunningham and Joseph Rees, “Industry Self-Regulation: An Institutional Perspective,” Law & Policy 19, no. 4 (1997): 365. 82. Randall Peerenboom, China Modernizes: Threat to the West or Model for the Rest? (New York: Oxford University Press, 2007), 294. China’s civil law system permits class actions. Sections 53, 54, and 55 of Civil Procedure Law (1991) govern cases where the number of litigants is more than one. Financial consumer protection cases involving financial institutions as defendants are typically pursued through class actions as individual consumers are not will- ing to go to the court over small amount of money on their own. For example, the China Merchants Bank’s suitcase case, widely reported in China, involved a class action. In February 2008, the China Merchants Bank credit card center promoted a kind of suitcase for purchase by credit card holders. It turned out that the online product description was not consistent with the actual suitcases provided to customers. In response to customer complaints, instead of attempting resolution through its internal complaints procedures, China Merchants Bank chose to amend the online product description in NOTES 195

order to achieve a consistent description. A few affected customers grouped together and initiated a class action with the Shanghai Pu Dong New District Court, alleging deceptive and misleading behavior. 83. Xinhua, Shanxi: Jin Rong Xiao Fei Zhe Tou Su You Le Tong Yi Chu Li Gui Ze [Shanghai: Standard Dispute Resolution Procedures for Financial Consumers], Beijing, 2013, http://news.xinhuanet.com/legal/2013–04/06 /c_115282175.htm. 84. Australian Government, Industry Sponsored Ombudsmen Schemes, Canberra, 2002, http://www.ombudsman.gov.au/pages/related-sites/industry -sponsored-ombudsman-schemes.php. 85. PBoC, Shan Xi Cun Kuan Lei Jin Rong Ji Gou Jin Rong Xiao Fei Zhe Bao Hu Zhi Dao Yuan Ze [Guiding Principles For Shan Xi Deposit Taking Institutions Financial Service Consumer Protection], Beijing, 2011, http://xian.pbc.gov .cn/publish/xian/2516/2011/20110831170138881811404/201108311701388818 11404_.html. 86. PBoC, Ren Hang Xi An Feng Hang Ji Ji Tui Dong Jin Rong Xiao Fei Zhe Bao Hu [PBoC Xi’an Branch Promotes Consumer Financial Protection], Beijing, 2011, http://www.pbc.gov.cn/publish/goutongjiaoliu/2956/2011/20111012145 749136471257/20111012145749136471257_.html. 87. Sun Gong Sheng, “Li Zu Jin Rong Weng Ding Bao Hu Jin Rong Xiao Fei Zhe” [Financial Stability & Financial Consumer Protection], Zhong Guo Jin Rong [China Finance] 11 (2011): 20. 88. PBoC, Financial Consumer Protection Bureau, Beijing, 2013, http://www .pbc.gov.cn/publish/jingrxfqy/4047/index.html and CBRC, Consumer Protection Bureau, Beijing, 2013, http://www.cbrc.gov.cn/chinese/nsbm /FCADE0C47D9E481D9BAC31E06863E7E2.html. 89. Gao Guo Yun, Sun Xiao Ping, and Men Yong Gang, “Jin Rong Xiao Fei Zhe Quan Yi Bao Hu Wen Ti Tian Xi” [Analysis on Consumer Financial Protection], Guan Su Jin Rong [Guan Su Finance] 12 (2010): 29. 90. “He Ping Xian Jin Rong Xiao Fei Zhe Quan Yi Bao Hu Gong Zuo Fang An de Tong Zhi” [Notice on He Ping County’s Work Consumer Financial Protection], 2011, http://ly.heping.gov.cn/Government/PublicInfoShow .aspx?ID=65. 91. For example, Nan Xiong City branch, Lian Jiang City branch, Nan Jing branch etc. 92. He Wei Ping, “Banking Regulation in China.”

6 Regulatory Dissonance

1. Joel Cooper and Russell H. Fazio, “A New Look at Dissonance Theory,” Advances in Experimental Social Psychology 17 (1984): 234. 2. ASIC, Debt Collection Complaints—Who Does What?, 2012, http://www.asic .gov.au/asic/pdflib.nsf/LookupByFileName/ACCC_ASIC_DebtBrochure .pdf/$file/ACCC_ASIC_DebtBrochure.pdf. 196 NOTES

3. Chapters 2 and 3 previously raised the issue of dissonance in general and in a broad Chinese context respectively. 4. “Decision on Chinese Banking Regulatory Committee in Charge of Supervisory and Regulatory Responsibility,” State Council, Beijing, 2003. 5. Laws of People’s Republic of China on Banking Regulation and Supervision, 2003, ss1, 2. 6. Laws of People’s Bank of China, 1995, s4. 7. Eric J. Pan, “Structural Reform of Financial Regulation in Canada: A Research Study Prepared for the Expert Panel on Securities Regulation,” Rotman School of Management, University of Toronto, 2008, 14. Different institutional structures in banking have been discussed in chapter 2. 8. Peng Liu, “Tracing and Periodizing China’s Food Safety Regulation: A Study on China’s Food Safety Regime Change,” Regulation & Governance 4, no. 2 (2010): 256. 9. Andrew Walter, “Chinese Attitudes towards Global Financial Regulatory Cooperation: Revisionist or Status Quo?” in Eric Helleiner, Stefano Pagliari, and Hubert Zimmerman (eds.), Global Finance in Crisis (Abingdon, UK: Routledge, 2009), 281. 10. PBoC, Xin Dai Zheng Ce [Credit Policy], http://www.pbc.gov.cn/publish/jinr ongshichangsi/1023/2010/20100915164335804922955/2010091516433580492 2955_.html. 11. Michael Geiger, “Instruments of Monetary Policy in China and Their Effectiveness: 1994–2006,” Paper presented at the United Nations Conference on Trade and Development, 2008, 12. 12. Basel Committee on Banking Supervision, “Core Principles for Effective Banking Supervision,” 2006, 3 and Laws of People’s Republic of China on Banking Regulation and Supervision, s21. 13. Geiger, “Instruments of Monetary Policy,” 12. Window Guidance is a flex- ible regulatory tool, and is usually communicated verbally, not in writing. Window Guidance allows for a tailored approach for regulators to regu- late different categories of banks in terms of size and complexity. For more detailed discussion regarding Window Guidance, see He Wei Ping, “Banking Regulation in China: What, Why, and How?” Journal of Financial Regulation and Compliance 20, no. 4 (2012): 367–384. 14. Eilis Ferran, “The Break-up of the Financial Services Authority,” Oxford Journal of Legal Studies 31, no. 3 (2011): 466. 15. Ren Min Ri Bao [People’s Daily], Yin Jian Hui Zheng Shi Mian Shi [The Official Establishment of the CBRC], 2003, http://www.people.com.cn/GB /14576/28320/29258/29259/2029883.html, at October 12, 2011. 16. Reserve requirements are the amount of funds that a bank must hold in reserve against specified deposit liabilities. See Board of Governors of the Federal Reserve System, Reserve Requirements, http://www.federalreserve.gov/monetarypolicy/reservereq.htm, at January 4, 2012; Ren Min Ri Bao [People’s Daily], “The PBoC to Keep Credit, Capital Levels in Check,” Ren Min Ri Bao [People’s Daily], 2007, http://english.peopledaily.com .cn/90001/90778/90859/7251736.html. NOTES 197

17. Guan Yu Zhi Chi Shang Ye Yin Hang Jin Yi Bu Gai Jing Xiao Qi Ye Jin Rong Fu Wu de Tong Zhi [Notice Concerning Improving Financial Service to Small Entities], 2011. 18. Ibid., s8. 19. The State Council, Yang Hang Shang Tiao Jin Rong Ji Gou Ren Min Bi Cun Kuan Zhun Bei Jin 0.5 Ge Bai Fen Dian [The PBoC Imposes 0.5% Increase in RMB Deposit Reserve Rate], 2011, http://www.gov.cn/gzdt/2011–06/14 /content_1884073.htm, at November 10, 2011. 20. This is a settlement mode where the payer entrusts a bank, on the payer’s behalf, to pay a payee. For a further explanation see Agricultural Bank of China, Entrusted Collection of Payment, 2007, http://www.abchina.com/en /personal-banking/settlement/collection-and-payment/ecop/, at January 3, 2012. 21. European Union Chamber of Commerce in China, “European Business in China Position Paper 2011/2012,” Brussels, 2011, 267. 22. Harold Furchtgott-Roth, “A User User’s Guide to Avoid Bad Regulation,” Speech delivered at the PURC Telecom Policy Roundtable, Tallahassee, Florida, October 30, 2006. 23. The American Chamber of Commerce People’s Republic of China, “American Business in China,” White Paper, 2011, 174. 24. Xinhua, “Yin Jian Hui” Xuan Nian Yao Xuan Duo Jiu? Zhuan Jia Guan Yuan Shuo Fa Bu Yi [When is the CBRC? Different Views from Experts and Officials], 2003, http://news.xinhuanet.com/fortune/2003–01/20 /content_696954.htm, at October 18, 2011. 25. Anne-Laure Delatte, “Monetary Policy and Macrocontrol in China: The Actual Impact of Window Guidance,” Job Market Paper, Hong Kong University of Science & Technology, Hong Kong, 2007, 6. 26. PBoC, Fan Xi Qian Ju [Anti-Money Laundering Bureau], 2006, http://www .pbc.gov.cn/publish/fanxiqianju/452/index.html, at February 6, 2012. 27. CBRC, Annual Report 2006, Beijing, 2007, 72. 28. Pricewaterhousecoopers, “Foreign Banks in China,” 2010, 65, http://www .pwccn.com/webmedia/doc/634082194595490480_fs_foreign_banks _china_may2010.pdf. 29. Deloitte, Anti-Money Laundering(AML)/Economic and Trade Sanctions (ETS) Compliance, 2007, 3, http://www.deloitte.com/assets/Dcom-Australia /Local%20Assets/Documents/Deloitte_AML_Alert_December.pdf. 30. Notice of the CBRC on Enhancing Operational Risk Control, CBRC, Beijing, 2005. 31. International Association of Insurance Supervisors, “Examples of Money Laundering and Suspicious Transactions Involving Insurance,” Basel, 2004, 2–4. 32. Sebastian Heilmann and Nicole Schulte-Kulkmann, “The Limits of Policy Diffusion: Introducing International Norms of Anti-Money Laundering into China’s Legal System,” Governance: An International Journal of Policy, Administration, and Institutions 24, no. 4 (2011): 654. 33. CBRC, Annual Report 2006, 128. 198 NOTES

34. David S. Hoelscher, Michael W. Taylor, and Ulrich Klueh, “The Design and Implementation of Deposit Insurance Systems,” IMF, Washington, DC, 2006, 9. 35. PBoC, Zhong Guo Ren Min Yin Hang Zai Da Lian Ju Ban “Cun Kuan Bao Xian Guo Ji Lun Tan” [The People’s Bank of China Convenes a International Forum of Deposit Insurance in Dalian], 2005, http://www.pbc.gov.cn /publish/jinrongwendingju/367/1477/14774/14774_.html, at June 13, 2011. 36. PBoC, Jin Rong Wen Ding Ju Jian Jie [Introduction of a Financial Stability Bureau], 2008, http://www.pbc.gov.cn/publish/jinrongwendingju/478/index. html, at November 2, 2011. 37. Hong Jia Lin, “Lun Ren Min Yin Hang Zai Wo Guo Cun Kuan Bao Xian Zhi Du An Pai Zhong de Di Wei” [The Role of the PBoC in the Deposit Insurance System], Jin Rong Lun Tan [Financial Forum] 10 (2006): 12 and Yan Haibo and Huang Ying, “Deposit Insurance and Banking Supervision in China: The Agenda Ahead,” The Geneva Papers 33 (2008): 548. 38. Ren Min Ri Bao [People’s Daily], Zhong Guo Ren Min Yin Hang: Cun Kuan Bao Xian Zhi Du Yi Bao Guo Wu Yuan Huo Ming Nian Tui Chu [The PBoC: A Deposit Insurance Scheme Put Forward to the State Council and Possible Introduction in the Next Year], http://politics.people.com.cn /GB/1026/8426974.html, at October 21, 2011. 39. China Daily, Deposit Insurance System to be Introduced, 2011, http://www.chinadaily.com.cn/bizchina/2011–01/08/content_11812713.htm, at November 2, 2011. 40. CBRC, Annual Report 2008, Beijing, 2009, 64. 41. CBRC, Annual Report 2006, 103. 42. For example, regarding foreign banks, the CBRC has expressed the view that such schemes should only be applicable to locally incorporated foreign banks, not foreign branches. Ibid., 44. 43. Dong Pei-wu, Zhang Xue-zhou, and Yao Xin, “Study of Deposit Insurance Pricing Model for Listed Banks in China Based on RV Method,” Paper presented at the 2008 International Conference on Management Science & Engineering, Long Beach, USA, September 10, 2008 and Wen Jia Bao, 2010 Nian Zheng Fu Gong Zuo Bao Gao [Government Report 2010], http://zhijindangjian.gov.cn/bbs/thread-28337–1–1.html, at October 19, 2011. 44. Andrew T. Williams, “Taking Values Seriously: Towards a Philosophy of EU Law,” Oxford Journal of Legal Studies 29, no. 3 (2009): 557. 45. Sol Picciotto, “Constructing Compliance: Game Playing, Tax Law, and the Regulatory State,” Law & Policy 29, no. 1 (2007): 13. 46. Avinash Persaud, “Macro-Prudential Regulation,” The World Bank, Washington, DC, 2009, 2. 47. Kevin Davis, “Regulatory Reform Post the Global Financial Crisis,” Australian Centre for Financial Studies, University of Melbourne, 2011, 32. 48. Shi Xiu Fen, “Dui Yang Hang Xing Shi Hong Guan Shen Shen Jian Guan Zhi Neng de Si Kao” [Thoughts on the PBoC’s Command of Macro-Prudential Regulation], Jin Rong Shi Bao [Financial Times], February 5, 2011. NOTES 199

49. Zhou Xiao Chuan, “Jin Rong Zheng Ce Dui Jin Rong Wei Ji de Xiang Ying” [Financial Policy in Dealing with Financial Crisis], Beijing University, December 15, 2010, http://www.pbc.gov.cn/publish/hanglingdao/2950/2011 /20110104191901596935544/20110104191901596935544_.html. 50. PBoC, Ren Hang Yan An Zhong Zhi: Ji Ji Kai Zhan Jin Rong Hong Guan Shen Shen Guan Li Gong Zuo [PBoC Yan An Branch: Actively Undertaking Macro-Prudential Regulation], 2011, http://xian.pbc.gov.cn/publish/xian/1 210/2011/20110322155204342304164/20110322155204342304164_.html, at November 15, 2011. 51. Liu Ming Kang, “Zhong Guo Yin Hang Ye Jian Guan de Xuan Ze” [Choices of China’s Banking Regulation], Speech delivered at the Asian Bankers Forum, Beijing, 2009. 52. CBRC, Speech by the CBRC Vice Chairman Wang Hua Qing at 2010 Lujiazui Forum, 2010, http://www.cbrc.gov.cn/EngdocView.do?docID=201007210339 137CBE126B75FFDDE305CD598400, at December 19, 2011. 53. CBRC, Annual Report 2008, 30. 54. Tou Su de Ji Ben Cheng Xu [Procedures for Complaints Handling], CBRC, Beijing, 2010, http://pub-edu.cbrc.gov.cn/pesw/info/tstj/doc_view .jsp?docID=jbcx. 55. Randall Peerenboom and Xin He, “Dispute Resolution in China: Patterns, Causes and Prognosis,” East Asia Law Review 4, no. 1 (2009): 39. 56. CBRC, Annual Report 2007, CBRC, Beijing, 2008, 85. 57. CBRC, 2007 Nian Shanghai Yin Hang Ye Ke Hu Tou Su Qing Kuang [Consumer Complaints in the Shanghai Banking Market in 2007], http://pub-edu.cbrc .gov.cn/cbrcweb/chinese/home/jsp/docView.jsp?docID=20081203120D4D6 A3DCBC315FF0284D240865E00, at November 28, 2011. 58. PBoC, Shan Xi Cun Kuan Lei Jin Rong Ji Gou Jin Rong Xiao Fei Zhe Bao Hu Zhi Dao Yuan Ze [Guiding Principles For Shan Xi Deposit Taking Institutions Financial Service Consumer Protection], 2011, http://xian.pbc .gov.cn/publish/xian/2516/2011/20110831170138881811404/20110831170138 881811404_.html, at October 6, 2011. 59. Ibid., s2. 60. For example, Rules on Shu Lan Ciy Financial Consumer Protection, CBRC, Beijing, 2011. 61. PBoC, Ji Gou Zhi Ze [Responsibilities of the Organization], 2003, http://xian .pbc.gov.cn/publish/xian/3347/index.html, at November 15, 2011. 62. Guan Yu Jing Ron Fu Wu Wai Bao Chan Ye Fa Zhuan de Jian Yi [Suggestions on Financial Services Outsourcing], CBRC, Beijing, 2009. 63. Yin Hang Ye Jin Rong Ji Gou Wai Bao Feng Xian Guan Li Zhi Ying [Guidance on Risk Management Regarding Financial Institutions’ Outsourcing], CBRC, Beijing, 2011, s27. 64. Ibid., s24. 65. “Zuo Hao Ge Ren Jin Ron Xin Xi Bao Hu Gong Zuo de Tong Zhi” [Notice on Protecting Personal and Financial Information], CBRC, Beijing, 2011, s6. 66. Ibid., s2. 200 NOTES

67. Ibid., s7. 68. Ibid., s10. 69. Xinhua, Zhong Guo Yin Jian Hui Yin Hang Ye Xiao Fei Zhe Quan Yi Bao Hu Ju Zheng Shi Cheng Li [Establishment of CBRC’s Consumer Protection Bureau], 2012, http://news.xinhuanet.com/politics/2012–11/20/c_113742210 .htm. 70. CBRC, Xiao Fei Z he Bao H u Ju [ Consumer Protection Bureau], 2013, http://www. cbrc.gov.cn/chinese/nsbm/FCADE0C47D9E481D9BAC31E06863E7E2 .html. 71. PBoC, Zhong Guo Ren Min Yin Hang Jin Ron Xiao Fei Quan Yi Bao Hu Ju Xiao Ju Zhang de Jiang Hua [Speech by Jiao PBoC Financial Consumer Protection Bureau], 2013, http://www.china-cba.net/bencandy. php?fid=43&id=11054. 72. PBoC, Zhong Guo Ren Min Yin Hang Jin Rong Xiao Fei Quan Yi Bao Hu Gong Zuo Guan Li Ban Fa (Shi Xing) [PBoC’s Rules on Financial Consumer Protection works (Provisional)], http://www.pbc.gov.cn/image_public /UserFiles/jingrxfqy/upload/File/ .pdf. 73. James L. Regens, “Institutional Coordination of Program Action: A Conceptual Analysis,” International Journal of Public Administration 11, no. 2 (1988): 136. 74. B. Guy Peters, “Managing Horizontal Government: The Politics of Co-ordination,” Public Administration 76 (1998): 297. 75. For example, another financial regulator is the China Insurance Regulatory Commission. This chapter only concerns the dissonance between the CBRC and the PBoC. 76. Aspects of coordination can be distinguished between volitive communi- cations and resource transfers. See Fritz W. Scharpf, “Interorganizational Policy Studies: Issues, Concepts and Perspectives,” in Kenneth Hanf and Friz W. Scharpf (eds.), Interorganizational Policy Making: Limits to Coordination and Central Control (London: SAGE Publications, 1978), 351–352. 77. The American Chamber of Commerce People’s Republic of China, “American Business in China,” 178. 78. Zhong Guo Ren Min Yin Hang Zhu Yao Zhi Ze Nei She Ji Gou He Ren Yuan Bian Zhi Gui Ding [Rules on the PBoC’s Main Objective, Institutional Structure, and Staffing], 2008, http://policy.mofcom.gov.cn/section /claw!fetch.html?id=G000079221. 79. Xinhua, Yin Hang Zan Ting Shou Qu Ling Chao Qing Dian Fei [Banks Stopped from Charging Some Fees for Over-the-Counter Transactions], 2010, http:// www.jx.xinhuanet.com/news/2010–06/05/content_19989691.htm. 80. The NDRC’s authority derives from the fact that the NDRC has the power to implement national price policy, and establish and adjust the price or pricing standards of goods and services. See National Development and Reform Commission, Fa Zhan Gai Ge Wei Zhu Yao Zhi Ze [Responsibility of the National Development and Reform Commission], 2003, http://www.sdpc .gov.cn/jj/default.htm. NOTES 201

81. Tatsuya Kameda et al., “Democracy Under Uncertainty: The Wisdom of Crowds and the Free-Rider Problem in Group Decision Making,” Psychological Review 118, no. 1 (2011): 76. 82. PBoC, Ren Min Yin Hang Ru He Kan Dai Jin Rong Jian Guan Xie Tiao Ji Zhi de Jian Li? [PBoC’s View on Financial Regulatory Coordination Mechanism], 2009, http://rmyh.gzlps.gov.cn/art/2009/2/27/art_5787_105349.html. 83. PBoC, 2007 Nian Zhong Guo Fan Xi Qian Bao Gao [2007 Report On China’s Anti-money Laundering], 2008, http://www.pbc.gov.cn/publish /fanxiqianju/1282807157712/_fileupload/426CBD8C.pdf, 6. 84. PBoC, Fan Xi Qian Gong Zuo Bu Ji Lian Xi Hui Yi Zhao Kai Di Yi Ci Gong Zuo Hui Yi First [Meeting of the Anti-Money Laundering Joint Committee], 2010. http://www.pbc.gov.cn/publish/fanxiqianju/3291/2010/2010082515255 9202913905/20100825152559202913905_.html. 85. “Zhong Guo 2008–2009 Nian Fan Xi Qian Zhan Rui” [China’s 2008–2012 AML Strategy], 2009, 1. 86. In addition to the CBRC, the PBoC also coordinates with other two regulators: China Insurance Regulatory Commission and China Securities Regulatory Commission, see in PBoC, “2007 Nian Zhong Guo,” 6–7. 87. Zhou Xiao Chuan, “Jin Rong Zheng Ce Dui.” 88. Jeremy Cooper, “The Integration of Financial Regulatory Authorities—the Australian Experience,” Australian Securities & Investments Commission, Canberra, 2006, 3. 89. It is a precedent in this regard that Australia, which has weathered the GFC quite well, has been a country without any form of explicit deposit insurance scheme. See Australian Government, Chapter 2: Australia’s Experience with Failure and International Experience with Guarantees, 2003, http://fsgstudy .treasury.gov.au/content/Davis_Report/04_Chapter2.asp. 90. K. Hanf, “Introduction,” in Interorganizational Policy Making: Limits to Coordination and Central Control (London: SAGE Publications, 1976), 6. 91. It is believed that Zhou Xiaochuan, the governor of the PBoC represents the interest of the “elitist coalition” while Liu Mingkang, the governor for the CBRC is unaligned. See Cheng Li, “Af ter Hu, Who?: The Rising Stars of China’s Fifth Generation,” in W. John Hoffmann and Michael J. Enright (eds.), China into the Future Making Sense of the World’s Most Dynamic Economy (London: John Wiley & Sons, 2008), 244 and Cheng Li, “One Party, Two Factions: Chinese Bipartisanship in the Making?” Paper presented at the conference on Chinese Leadership, Politics, and Policy, at Carnegie Endowment for International Peace, Washington, DC, November 2, 2005. 92. Regens, “Institutional Coordination of Program Action,” 143. 93. The American Chamber of Commerce People’s Republic of China, “American Business in China,” 174 and European Union Chamber of Commerce in China, ‘European Business in China,” 267. 94. For a further discussion regarding the relationship between Chinese banks and its regulators see He Wei Ping, “Why China’s Banking Sector Remains Closed to Meaningful Foreign Participation,” Journal of International Banking Law & Regulation 4 (2012): 186. 202 NOTES

7 Regulatory Capture

1. Fred S. Mcchesney, “Rent Extraction and Rent Creation in the Economic Theory of Regulation,” Journal of Legal Study 16 (January 1987): 101. 2. Ibid., 102. 3. Xavier Freixas and Anthony M. Santomero, “An Overall Perspective on Banking Regulation,” Working Papers 02–1, Federal Reserve Bank of Philadelphia, 2002, 8. 4. James Barth, Gerard Caprio, and Ross Levine, Rethinking Bank Regulation: Till Angels Govern (Cambridge: Cambridge University Press 2006), 35. 5. George Stigler, “The Theory of Economic Regulation,” Bell Journal of Economics and Management Science 2, no. 1 (1971): 3. 6. For example, the outgoing premier Wen can be seen as a populist. See The Economist, Populist Politics in China: Why Grandpa Wen Has to Care?, 2008, http://www.economist.com/node/11541327. 7. Government popular responses are not always consistent with public interest. See Hans Gersbach, “Statesmen, Polulists and the Paradox of Competence,” Center of Economic Research at ETH Zurich and CEPR, 2005. 8. Warrick Smith, “Utility Regulators—The Independence Debate,” Public Policy for the Private Sector127 (October 1997): 1. 9. Martino Maggetti, “De Facto Independence After Delegation: A Fuzzy-set Analysis,” Regulation & Governance 1, no. 4 (2007): 271–272. 10. Marc Quintyn and Michael W. Taylor, “Regulatory and Supervisory Independence and Financial Stability,” IMF Working Paper 02/46, 2002, 3–4. 11. Stephen K. Ma, “What Can We Learn from Recent Developments in China’s Public Administration?” Public Administration Review 67, no. 6 (2007): 1089. 12. Sean M. Dougherty and Robert H. McGuckin, “The Effects of Federalism on Productivity in Chinese Firms,” Management and Organization Review 4, no. 1 (2007): 39. 13. Laws of People’s Republic of China on Banking Regulation and Supervision, 2003, s5. 14. Margaret Pearson, “Governing the Chinese Economy: Regulatory Reform in the Service of the State,” Public Administration Review 67, no. 4 (2007): 724. And CBRC, Guan Yu Zhong Guo Ren Min Yin Hang Ye Jian Du Wei Yuan Hui Lu Xing Yuan You Zhong Guo Ren Min Yin Hang Lu Xing de Jian Du Guan Li Zhi Ze de Jue Ding [Decision on Chinese Banking Regulatory Committee in Charge of Supervisory and Regulatory Responsibility], 2003, http://www .cbrc.gov.cn/chinese/home/jsp/docView.jsp?docID=259. 15. Di Yi Cai Jing [First Finance], “Long Guo Qiang,” Interview with Long Guo Qiang, Deputy Head of Development Research Centre, the State Council, 2008. 16. Ministry of Human Resources and Social Security, National Public Servant Recruitment System, 2010, http://bm2010.scs.gov.cn/UserControl/Student /StudentIndex.aspx. NOTES 203

17. Ministry of Finance, Financial Report 2009, Beijing, 2010, http://yss.mof.gov .cn/2010zhongyangyusuan/201003/t20100325_280104.html. 18. Qianlan Wu, “The Making of a Market Economy in China: Transformation of Government Regulation of Market Development,” European Law Journal 13, no. 6 (2007): 13. 19. CBRC, Annual Report 2008, 2009, 98, 116–119. 20. “Yin Hang Ye Jia Qiang 2010 Shanghai Shi Bo Hui Ji Guang Zhou Ya Yun Hui Qi Jian Xin Xi Ke Ji Feng Xiang Fang Kong Gong Zuo” [Information and Technology Risks for 2010 World Expo], 2010, http://www.cbrc.gov.cn /chinese/home/jsp/docView.jsp?docID=20100316FFE6E156CF4DC5FFFF11 B288DAB81400. 21. CBRC, What Is the CBRC, Beijing, 2003, http://www.cbrc.gov.cn/chinese /info/yjhjj/index.jsp. 22. Neil Gough, China’s Biggest Banks Are Squeezed for Capital, New York Times, 2012, http://dealbook.nytimes.com/2012/04/23/chinas-biggest-banks-are -squeezed-for-capital/. 23. China Daily, ICBC to Conduct Bond Sale to Raise Capital, Beijing, 2011, http://www.chinadaily.com.cn/cndy/2011–06/23/content_12756223.htm. 24. He Wei Ping, “The Powers of the China Banking Regulatory Commission,” Journal of International Banking Law & Regulation 27, no. 2 (2012): 104. 25. Shi Jing Feng, “Si Re Xin Ban Zi Dao Gang” [New Leadership Appointed], 21 Shi Ji Jing Ji Bao Dao [21st Century Economy Report], January 4, 2011, 5 26. Peter Sheehan and Bhajan Grewal, “Strategic Change and the Limits of Central Authority in China,” Public Finance and Management 8, no. 4 (2008): 587. 27. Dougherty and McGuckin, “The Effects of Federalism on Productivity,” 57. 28. “Zhi Chi He Fa Zhan Nong Cun Jing Ji He Xiao Qi Ye” [Supporting the Development of County Economy and Small Enterprises], 2008, http://www .cbrc.gov.cn/chinese/home/jsp/docView.jsp?docID=2008032543319DB3E8E E6B06FF1DA9F2B1F0F400. 29. “Sheng Jin Rong Ban Shan Xi Yin Jian Ju Guan Yu Jiong Rong Zhi Chi Xian Yu Jing Ji Fa Zhan Yi Jian de Tong Zhi” [Finance Department and CBRC Shan Xi Bureau Regarding Supporting the Development of County Economy], 2009, http://www.shaanxi.gov.cn/0/104/6722.htm. 30. H. W. C. Yeung, “Local Politics and Foreign Ventures in China’s transitional Economy: The Political Economy of Singaporean Investments in China,” Political Geography 19, no. 7 (2000): 839. 31. Liu Ming Kang, “Zhong Guo Yin Hang Ye Jian Guan de Xuan Ze” [Choices of China’s Banking Regulation], Speech delivered at the Asian Bankers Forum, Beijing, 2009. 32. Shiuh-She Chien, “Economic Freedom and Political Control in Post- Mao China: A Perspective of Upward Accountability and Asymmetric Decentralization,” Asian Journal of Political Science 18, no. 1 (2010): 71 and Shujie Yao, Zhongwei Han, and Genfu Feng, “Ownership Reform, Foreign Competition and Efficiency of Chinese Commercial Banks: A Non- parametric Approach,” The World Economy 38 (2008): 1310. 204 NOTES

33. Gong Chao, “Di Fang Zheng Fu Rong Zi Ping Tai de Feng Xian Feng Xi” [Analysis of Risks Associated with Local Government Funding Platform], Xian Dai Yin Xiao [Modern Marketing] 5 (2011): 100. 34. Tang Yang Jun, “Cai Zheng Feng Quan yu Di Fang Zheng Fu Rong Zi Ping Tai de Fa Zhan” [Separation of Fiscal Power and the Development of Local Government Funding Platform], Shanghai Jin Rong [Shanghai Finance] 3 (2011): 25. 35. CBRC, Annual Report 2010, Beijing, 2011, 24. 36. Wu Xia Hong, “Di Fang Rong Zi Ping Tai Cun Zai de Wen Ti Yu Dui Ce” [Local Government Funding Platform’s Problems and Solutions], Ji Shu Yu Shi Chang [Technology and Market] 18, no. 1 (2011): 96. 37. Tang, “Cai Zheng Feng Quan yu,” 25. 38. Geng Hong Bin, “Di Fang Zheng Fu Rong Zi Ping Tai Dai Kuan Feng Xian Ji Qi Fang Fan Hua Jie Cuo Shi Qian Tan” [Solving Problems in Relation to Local Government Funding Platform], Jin Rong Zong Heng Finance 8 (2010): 30. 39. CBRC, Annual Report 2010, 112. 40. Ibid., 47. 41. Ibid., 128–129. 42. Ren Si Yuan, “26 Jia Shang Shi Gong Si 51 Yi Wei Tuo Dai Kuan Liu Xiang Di Fang Rong Zi Ping Tai” [26 Listed Companies 5.1 Billion Entrusted Loans to the Local Government Funding Platform], Cai Hui Xin Bao, May 6, 2013. 43. Liao Min, “Shadow Banking Activities and Its Supervision in China,” China Banking Regulatory Commission, Washington, DC, 2011. 44. People’s Bank of China does not publicize the national volume of entrusted loans. Wang Jia Hui, ‘Wei Tuo Dai Kuai Ye Wu de Te Zhe, Ying Xiang Ji Fen Xian Jian Ce,” New Finance 38, no. 2 (2013): 288. 45. Liao Min, “Shadow Banking Activities.” 46. IMF, “People’s Republic of China 2013 Article IV Consultation,” Washington, DC, 2013. 47. Shiuh-She Chien, “Economic Freedom and Political Control,” 70. 48. CBRC, Annual Report 2010, 16. 49. Regulations of the People’s Republic of China on Administration of Foreign- Funded Banks, CBRC, Beijing, 2006, s14. 50. Geng Hong Bin, “Di Fang Zheng Fu Rong Zi Ping Tai Dai Kuan Feng Xian Ji Qi Fang Fan Hua Jie Cuo Shi Qian Tan Solving Problems in Relation to Local Government Funding Platform,” Jin Rong Zong Heng Finance 8 (2010): 30. 51. IMF, “People’s Republic of China: Financial System Stability Assessment,” 2011, 38. For detailed discussion regarding Financial System Stability Assessment see Dalvinder Singh, “The Role of the IMF and World Bank in Financial Sector Reform and Compliance,” in Wenhua Shan, Penelope Simons and Dalvinder Singh (eds.), Redefining Sovereignty in International Economic Law (Oxford: Hart Publishing, 2008), 349. 52. Yan Qin Min, CBRC Shanghai Bureau, “Shun Ying Fu Za Hong Guan Huan Jing Qiang Hua Nei Bu Feng Xian Guan Kong Cu Jing Ge Xiang Ye Wu chi NOTES 205

Xu Wen Ding Fa Zhan” [Macro-Economy, Internal Risk Control, Business Development], July 30, 2010. 53. Jiang Xi Ri Bao [Jiang Xi Daily], “Jiang Xi Zheng Fu Rong Zi Ping Tai Shou Xian Wai Zi Yin Hang” [Foreign banks at Jiang Xi Local Government Funding Platform], Jiang Xi Ri Bao [Jiang Xi Daily], 2010, http://www.jxnews.com.cn /xxrb/system/2010/12/07/011536328.shtml. 54. The Economist, The Limits of Central Authority, London, 2011, http://www .economist.com/blogs/freeexchange/2011/06/chinas-economy-0. 55. Alan Greenspan, The Age of Turbulence (New York: Penguin Books, 2007), 524. 56. Shujie Yao et al., “WTO Challenges and Efficiency of Chinese Banks,” Applied Economics 39, no. 5 (2007): 641. 57. Dougherty and McGuckin, “The Effects of Federalism on Productivity,” 40. 58. For example, China’s Construction Bank (CCB) is one of four state-owned banks. 57% of issued shares in the CCB are primarily held by Huijin, an incorporated central government management agency, and the shareholding is managed by SASAC. On January 1, 2009, the state share in the CCB was 74% as it was on January 1, 2007. See China Construction Bank, Annual Report 2009, Beijing, 2010, 84. 59. The central government and local governments have equity stakes in these banks. For example, the Shanghai State-owned Assets Commission holds a 28% stake in Shanghai Pudong Development bank, remaining its biggest shareholder. Shanghai Pudong Development Bank, Annual Report 2007. This continued up to 2009. See Shanghai Pudong Development Bank, Annual Report 2009, 20. The Shanghai government owns more than 20.2% of Shanghai Rural Commercial Bank and is its largest shareholder. See Shanghai Rural Commercial Bank, Annual Report 2007, 18–19. 60. State-Owned Assets Supervision and Administration Commission of the People’s Government of Zhejiang Province, Functions of the State- Owned Assets Supervision and Administration Commission of the People’s Government of Zhejiang Province, 2008, http://www.zjsgzw.gov.cn /art/2008/11/8/art_311_1502.html. 61. Geoff Edwards and Leonard Waverman, “The Effects of Public Ownership and Regulatory Independence on Regulatory Outcomes,” Journal of Regulatory Economics 29, no. 1 (2006): 51. 62. State-Owned Assets Supervision and Administration Commission of the People’s Government of Zhejiang Province, Functions of the State-Owned Assets. 63. For example, Li Li Hui, before he became chairman of the Bank of China, was the deputy head of He Nan province. Currently, as chairman of the Bank of China, he holds a position politically equivalent to a head of an administrative province in China. See Bank of China, Yin Hang Ling Dao [Leaders in the Bank], Beijing, 2010, http://www.boc.cn/aboutboc/. 64. Zang Qiu Tao, a vice-chairman of Everbright Bank, was the deputy division director of the State Planning Commission, See Everbright International, 206 NOTES

Directors & Senior Management, Shanghai, 2006, http://www.ebchinaintl .com/e/about_bod.php. Lu Guang Yu, the director of Bank of Ningbo, served as the deputy head of financial department of Ningbo government, and the assistant to the head of State-Owned Asset Commission in Ningbo. See Bank of Ningbo, 2010 Nian Nian Du Bao Gao [Annual Report 2010], Ningbo, 2011, 13. 65. CBRC, Yin Jian Hui Ling Dao [Leaders in the CBRC], 2012, http://www.cbrc .gov.cn/chinese/info/yjhjj/index_ld_lmk.jsp. Also Zhu Xiao Hua, served in key positions in People’s Bank of China and State Administration of Foreign Exchange before he took on the leadership of the Everbright Bank. See Xinhua, Zhu Xiao Hua Shou Hui An Zhong Sheng Pan Jue [Verdict of Zhu], Beijing, 2002, http://news.xinhuanet.com/newscenter/2002–11/01 /content_615636.htm. 66. Ernesto Dal Bo, “Regulatory Capture: A Review,” Oxford Review of Economic Policy 22, no. 3 (2006): 214. 67. “Princelings” refers to the children of high ranking party officials. The role played by “Princelings” in China’s economic developed is discussed in Ronald J. Gilson and Curtis J. Milhaupt, “Economically Benevolent Dictators: Lessons for Developing Democracies,” The American Journal of Comparative Law 59 (2011): 227. 68. Xinhua, Mei Ti Pan Dian Ling Dao Ren Hou Dai [Media Comments on Children of Leaders], http://wap.xinhuanet.com/entityitem/552/20121205/2 575577_1_x_.shtml, and China Merchants Group, Chairman Qin Xiao Meets with Vice President of China Construction Bank, Beijing, 2012, http://wwwen .cmhk.com/n129/c10839/content.html. 69. De jure illegality, the not always open nature of the Chinese judicial system, and the unlikelihood of foreign corporations being candid about their involvement (due to consequences at home as well as consequences for their future business in China) mean that primary materials, as opposed to anec- dote, are extremely difficult to obtain. 70. Xinhua, Wang Xue Bing Shou Hui Yi Sheng Bei Pan 12 Nian [Wang Xue Bing Sentenced to 12 Years’ of Imprisonment for Corruption], Beijing, 2003, http://news.xinhuanet.com/legal/2003–12/10/content_1224514.htm. 71. Joel Feinberg, Harm to Self the Moral Limits of the Criminal Law (New York: Oxford University Press, 1986), 8. 72. Gerald Dworkin, “Paternalism,” in Richard Wasserstrom (ed.), Morality and the Law (Belmont, CA: Wadsworth Pub, 1971), 120. 73. Steven Wall, “Self-Ownership and Paternalism,” The Journal of Political Philosophy 17, no. 4 (2009): 403. 74. Steven Fries and Anita Taci, “Banking Reform and Development in Transition Economies,” European Bank for Reconstruction and Development, Working Paper No. 71, 2002, 1. 75. CBRC, Annual Report 2009, Beijing, 2010, 17. 76. CBRC, Annual Report 2010, 87. NOTES 207

77. Standard Chartered, Standard Chartered Launches Roadshow to Promote RMB Products and Services, Hong Kong, 2011, http://www.standardchartered.com.hk/news/2011/press_20110117.pdf, at January 17, 2011. 78. CBRC, Annual Report 2009, 73. 79. KPMG, “Great Expectations New Guidance for China’s Banking Sector,” 2006, 3. 80. Standard Chartered, Standard Chartered Launches Roadshow. 81. SASAC, Rui Yin Jiang Zai Jing Zhu Ce Fa Ren Yin Hang [UBS Local Incorporated in Beijing], Beijing, 2007, http://ma.sasac.gov.cn/bgrz/gqss/tz yhdt/2007/1010/0710101766244895EB5E97DABKBGHC.asp. 82. Li Rui Huan, a member of the National People’s Congress Standing Committee has been posted to various important positions at the central government level. See The State Council, Li Rui Huan, Beuhubgm, 2008, http://www.gov.cn/gjjg/2008–03/14/content_920440.htm. 83. Standard Chartered, Standard Chartered Appoints Chairperson for Greater China and New China CEO, Hong Kong, 2009, http://www.standardchartered.com/media-centre/press-releases/2009/documents/20090721_2 /index.html. 84. Pricewaterhousecoopers, “Foreign Banks in China,” 2010, 6. 85. CBRC, Annual Report 2009, 45. 86. Franklin Allen, Jun Qian, and Meijun Qian, “Law, Finance, and Economic Growth in China,” Journal of Financial Economics 77 (2005): 99. 87. Niu Tai Shen, “Cong Wu Ying An Kan Ming Jian Rong Zi Fa Lu Kun Ju” [Case of Wu Ying: The Conundrum of Informal Financing], Jing Ji [Economy] 10 (2011): 57. 88. Guo Wu Yuan Ban Gong Ting Guan Yu Yi Fa Cheng Chu Fei Fa Ji Zi You Guan Wen Ti de Tong Zhi [Notice on Punishing Illegal Fund-Raising], 2007, http:// www.gov.cn/zwgk/2007–07/27/content_698659.htm. 89. Wu Ying’s case is well publicized in China. From 2005 onward, Wu Ying raised RMB 773,395,000 from several individuals. On April 20, 2012, the Supreme People’s Court of the People’s Republic of China overturned Wu Ying’s death sentence and required the Zhe Jiang High People’s Court to review the case. 90. “Wen Jia Bao Zhu Chi Zhao Kai Guo Wu Yuan Chang Wu Hui Yi Jue Ding She Li Wen Zhou Shi Jin Rong Zong He Gai Ge Shi Yan Qu” [Establishing Wen Zhou as Financial Reform Experimental Area], 2012, http://www.gov. cn/ldhd/2012–03/28/content_2102006.htm. 91. “Wen Zhou Min Jian Jie Dai Deng Ji Fu Wu Zhong Xin 4 Yue Shi Yun Xing” [Trial of Wen Zhou Informal Lending Registration Companies in April], 2012, http://www.gov.cn/jrzg/2012–03/31/content_2104132.htm. 92. How this initiative impacts on the private sector’s funding situation is yet to be seen. 93. For detailed discussion regarding county banks see He Wei Ping, “Regulating the Entry of Foreign Banks into China’s Banking Sector,” Journal of Banking 208 NOTES

and Finance Law and Practice 23, no. 1 (2012): 35. Credit companies and micro-credit companies are two terms used alternately by authorities. 94. “Guan Yu Xiao E Dai Kuan Gong Si Shi Dian de Zhi Dao Yi Jian” [Guidance on Trial of Micro-Credit Companies], CBRC, 2008, http://www.cbrc.gov.cn /chinese/home/docView/2008050844C6FDE83536CF44FFF6E85E5BC32C0 0.html. 95. Gao Li Shuang, “Xiao E Dai Kuan Gong Si De Fa Lu Kun Jing Ji Chu Lu” [Micro-Credit Companies’ Difficulties and Solutions], Fa Zhi Yu She Hui [Law and Society] 6 (2011): 107. 96. Wang Da Long, “Dang Qian Wo Guo Xiao E Dai Kuan Gong Si Cun Zai de Wen Ti Ji Zheng Ce Jian Yi” [Problems and Policy Suggestions for Micro- Credit Companies], Jin Rong Jiao Xue Yu Yan Jiu [Finance Teaching and Studies] 6 (2011): 77. 97. “Xiao E Dai Kuan Gong Si Gai Zhi She Li Cun Zheng Yin Hang Zhan Xing Gui Ding” [Interim Rule Regarding Micro-Credit Companies Upgrading to County Banks], 2009, http://www.cbrc.gov.cn/chinese/home/docView/2009 06185791AF110FF29900FFF85EC185692600.html.

8 Conclusion

1. James E. Alt and Kenneth A. Shepsle, “Editors’ Introduction,” in James E. Alt and Kenneth A. Shepsle (eds.), Perspectives on Positive Political Economy (New York: Cambridge University Press, 1990), 3. 2. Reuters, China Banks Took 29 pct of 2011 Global Profit, London, 2011, http://www.reuters.com/article/2012/07/01/banks-profit-biggest -idUSL6E8HTIUP20120701. 3. For further discussion regarding paternalistic regulation please see in He Wei Ping, “Paternalistic Regulation in China’s Banking Sector,” The Chinese Journal of Comparative Law 1, no. 2 (October 2013): 289. Bibliography

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anti-money laundering, 24, 113, 114, foreign banks, 11, 54, 55, 68, 71–92, 118, 119, 126, 127 141–4, 147, 153–6 APRA, 44 FSA, 30, 33, 43–5 ASIC, 44 GFC, 31–3, 35–43, 43–50, 55, 68, 96, Bank of Agriculture, 88 100–2 Bank of America, 17, 84, 86, 120, 150 Bank of China, 1, 14, 17, 86, 140, HSBC, 82, 84, 88–91 141, 153 Hu Jing Tao, 10 business conduct, 41, 55, 56, 57, 98, 99 informal financing, 145 caveat emptor, 93, 100–4, 112 informal lending, 145, 155 central government, 3, 4, 6, 9–18, 53, Information Disclosure, 98, 99 54, 59, 60, 67, 68, 77, 82, 91, 115, institutional structure, 43, 44, 138, 120, 124–8, 133–41, 145, 149, 154 152–5 IPOs, 17, 86, 153, 154 China Construction Bank, 17, 84, 91, 94, 108, 141, 150, 153 jurisdictional dissonance, 113, 114, Chinese banks, 3, 7, 11–18, 51–9, 66, 125, 128 69, 72, 77, 79–87, 90–5, 112, 120, 128, 131–5, 140–4, 150–6 LGFP, 136–9 competition, 4–7, 10–12, 30, 58, 85, 92, local government, 59, 110, 137–40 104, 107, 111, 151–4 Local Government Funding Platform. consumer education, 94, 102–4 See LGFP consumer financial protection, 93, 152 coordination, 124–8 Ministry of Finance, 54 county banks, 60, 87–92, 145–7 moral hazard, 31, 38 CPC, 5, 6, 8, 16, 72, 74 Credit Regulation, 61, 115 NDRC, 54, 83, 93, 94, 105, 106, 111, 125 deposit insurance schemes, 31, 38, 39, NPLs, 15–17, 55, 137 42, 119–20 derivative, 54, 64, 68, 96, 97 paternalistic approach, 22, 48, 49, 141 dispute resolution, 97, 107–22 Postal Savings Bank of China, 88 Price Regulation, 104 economic growth, 5, 10, 61, 92, 150, private interest theory, 33–5, 131, 132, 152–4 140, 146 244 INDEX product regulation, 49, 94, 97, 98 stability, 9–10, 136–8, prudential regulation, 39, 40–1, 44, 61, 152–5 52–7, 115, 120, 121 Standard Chartered Bank, 142, 143 public interest theory, 29–33 State-owned Assets Supervision and Administration Commission. See RBS, 86 SASAC reform, 5–8, 13–18, 151–6 systemic regulation, 36 regulatory dissonance, 113–29 representative offices, 72–5 UBS, 143 risk management, 40, 47, 55 RMB business, 76, 77 wealth management, 95, 137 Wen Zhou, 145 SAFE, 53 Window Guidance, 65, 66, 67, 115 SASAC, 54, 140 WTO, 11, 72, 76, 77, 80 self-regulation, 44 Wu Ying, 145 shadow banking, 18, 155 socialist market economy, 8, 149, 150 Xi Jinping, 7, 61