Learn a little bit of finance every day

Chapter 18 Financial System "Family Portrait" (1)
interlocking financial system

It has been nearly a year since the financial crisis evolved from the subprime mortgage crisis broke out in 2008. The financial turmoil generated by it has widely and rapidly affected every level of the economy, and has historically rewritten the operation mode of the US financial market. .In March 2008, when Bear Stearns, the fifth largest investment bank in the United States, was acquired by JPMorgan Chase due to serious losses in subprime mortgage investment, many people thought that the subprime mortgage crisis was coming to an end. The prelude to the tsunami. In September, Fannie Mae and Freddie Mac, the two largest “government-funded institutions” in the United States, were taken over by the U.S. government; Merrill Lynch, the third largest investment bank, was acquired; Lehman Brothers, the fourth largest investment bank, applied for Bankruptcy protection; AIG, the largest insurance company, was taken over by the Federal Reserve in a controlling manner; investment banks Morgan Stanley and Goldman Sachs were transformed into bank holding companies, so that they could permanently obtain emergency loans from the Federal Reserve.The financial tsunami on Wall Street this time shows that the era of a large number of financial innovation tools has come to an end.

The materials illustrate the fact that financial regulation needs to be reformed.When the 158-year-old fourth-largest investment bank in the United States filed for bankruptcy protection, the situation was like knocking down the first domino in the financial system.Unsound financial system and financial regulation are the main root of the problem.This reminds me of another little story.

This story was told by Pan Shiyi to Huang Yasheng in 2000:

In 1997, he managed to meet through an intermediary with the head of the local branch of a large state-owned bank.

The leader of this branch said: "We have a policy that we cannot meet with private entrepreneurs. Our branch lent money to private farmers to buy donkeys in 1954. They did not pay back the money."

In reality, countries around the world have different financial systems, and it is difficult to use a relatively unified model to summarize them.From an intuitive point of view, a significant difference between the financial systems of developed countries is reflected in the importance of financial markets and financial intermediaries in different countries.Here, there are two extreme examples, one is Germany, where a few big banks play a dominant role, and the financial market is very insignificant; the other extreme is the United States, where the financial market plays a large role and the concentration of banks is very small.There are other countries between these two extremes, such as Japan and France, which traditionally have a banking-based system, but the financial market has developed rapidly in recent years and has played an increasingly important role; the financial markets of Canada and the United Kingdom The market is more developed than Germany, but the banking sector is more concentrated than in the US.

In a general sense, the financial system is the basic framework of capital flow in an economy, which is composed of various financial elements such as capital flow tools (financial assets), market participants (intermediaries) and transaction methods (markets). At the same time, because financial activities have strong externalities, they can be called quasi-public goods to a certain extent. Therefore, the government's regulatory framework is also an inseparable part of the financial system.

In general, a financial system is mainly composed of several interrelated parts:
First, the financial sector (Financial Sector, various financial institutions, markets, which provide financial services to the non-financial sector of the economy);
Second, financing model and corporate governance (Financing Patten and Corporate Governance, the financing behavior and basic financing tools of residents, enterprises, and the government, and the organizational framework for coordinating the interests of all parties involved in the company);
Third, the regulatory system (Regulation System).

The financial system is not the simple addition of these parts, but the result of mutual adaptation and coordination of various parts.It also includes five aspects: financial control system, financial enterprise system (organizational system), financial regulatory system, financial market system, and financial environment system.

(1) The financial control system is not only an integral part of the national macro-control system, including the coordination of monetary policy and fiscal policy, maintaining currency stability and total balance, improving the transmission mechanism, doing a good job in statistical monitoring, and improving the level of control; it is also a financial macro-control system. Regulation mechanism, including interest rate marketization, interest rate formation mechanism, exchange rate formation mechanism, capital account convertibility, payment and settlement system, organic combination of financial markets (currency, capital, insurance), etc.

(2) Financial enterprise system, including not only modern financial enterprises such as commercial banks, securities companies, insurance companies, and trust investment companies, but also the reorganization of central banks, state-owned commercial banks listed, policy banks, financial asset management companies, and small and medium-sized financial institutions Reform and develop various ownership financial enterprises, rural credit cooperatives, etc.

(3) The financial supervision system (financial supervision system) includes improving the financial risk monitoring, early warning and disposal mechanism, implementing the market exit system, enhancing the transparency of supervision information, accepting social supervision, properly handling the relationship between supervision and supporting financial innovation, and establishing a supervision coordination mechanism (banking, securities, insurance and central bank, financial sector), etc.

Lifting the Veil on Financial Structures

The high oil price in the first half of 2008 aroused the concern of the world's major economies, and various countries tried to find solutions.

At the meeting of energy ministers of China, the United States, India, South Korea, and Japan held in Japan in June, Zhang Guobao, deputy director of the National Development and Reform Commission of China, said that the relationship between the oil market and the financial market is increasingly close, and a large number of oil transactions are completed through the financial market. It has become a financial concept influenced by many factors.He said that when oil becomes a speculative and investment commodity, any related factors, including increased consumption, exchange rate changes, geopolitical situation, natural disasters, etc., may become a reason for speculation and speculation.

On the same day, the 12th St. Petersburg International Economic Forum opened.Russian President Dmitry Medvedev pointed out more bluntly at the meeting: "One of the main reasons leading to the occurrence of the world financial crisis is that the actual status of the United States in the world economic system is not in line with its potential and role; No matter how large the scale, and no matter how reliable the US financial system is, they cannot replace the global commodity and financial markets. Therefore, the global financial structural system must be reformed. Today we are witnessing the world financial crisis, rising raw material and food prices, And the frequency of many global disasters clearly shows that the global management mechanism has been unable to cope with the many challenges it faces."

Why can the financial crisis always spread rapidly on a global scale, but cannot be strangled in a certain country or scope?Because the whole world has formed an overall financial structure, each component is all loss and prosperity.When the financial crisis comes, the financial structure will also be greatly impacted, and the financial system behind it is also easily questioned.

The financial structure refers to the distribution, existence, relative scale, mutual relationship and cooperation state of each component that constitutes the overall financial system.

A country's overall finance is mainly composed of various financial industries (banking, securities, insurance, trust, leasing, etc.), financial markets, financing activities under various credit methods, and financial assets formed by various financial activities.The basic conditions for forming a country or region's financial structure are mainly: the degree of commercialization and monetization of economic development, the degree of development of the commodity economy, the degree of development of credit relations, the degree of rationalization of the behavior of economic subjects, culture, traditions, customs and preferences etc.

The combination of financial organizations, financial instruments, financial commodity prices, financial business activities, etc., that is, the combination of various parts of the financial whole.It belongs to the category of economic structure and reflects the structure of the entire economy from the perspective of capital value and credit.People generally summarize financial structure from three aspects: financial system structure, financial instrument structure and interest rate structure.

The financial system structure refers to the setting ratio of various financial institutions and the internal organizational status of financial institutions.It consists of many financial institutions, including the central bank, commercial banks, insurance companies, trust investment companies, securities companies, credit unions, etc.The status and role of these institutions in the financial system is the main content of the financial system structure.Within financial institutions, the establishment of branches, the ratio of business departments to management departments, etc. are also structural issues of the financial system.

The structure of financial instruments refers to the scope of use of various financial instruments in the financial market, such as cash, checks, bills of exchange, stocks, bonds, etc., and their proportions in financial transaction volume.

Interest rate structure refers to the composition of financial commodity prices, which reflects the combination of quality, income and maturity of various financial instruments.

The formation of a country's financial structure depends on many factors, the main ones being the socio-economic system and the degree of economic development.Finance is the lending and intermediation of monetary funds, which emerged after the economy developed to a certain extent.Financial business also develops continuously along with the development of the economy.The development of the commodity economy constantly puts forward new requirements for finance, which promotes the development of the financial structure from simple to complex.However, the financial structure is not completely passively determined by the economy, it also has a strong influence on the formation of the social economic structure that determines the development of the social economy, and plays a decisive role to a certain extent.This is because a certain financial structure is the condition and promotion factor for the smooth operation of the commodity economy; in addition, a reasonable financial structure can adjust the social economic structure and promote the development of the economic structure in the direction of rationalization.

Banks: the well-deserved "big brother"

In the Middle Ages, there were only two kinds of rich people in the world, one was nobles and the other was bishops.So, banks are unnecessary because there is no commercial activity at all.

In the 17th century, some civilians got rich through business and became rich merchants.They all deposited their money in the king's mint for safety.At that time, there were no banknotes, and the so-called saving money meant storing gold.Because the "Free Coinage" system was implemented at that time, anyone could take gold nuggets to the mint and mint them into gold coins, so the mint allowed customers to deposit gold.

But these merchants did not realize that the mint belonged to the king, and if the king wanted to use the gold in the mint, there was no way to stop it. In 1638, a war broke out between Britain and the Scottish nobles. In order to raise military expenses, King Charles I expropriated the gold of the civilians in the mint, which was called a loan to the king.Although the gold was later returned to its original owner, the merchants felt that the mint was not safe.So they deposited their money with the goldsmith.The goldsmith issued a certificate for the depositor, and with this certificate in the future, he could withdraw gold.

Later, merchants discovered that when they needed money, they didn't need to take out the gold, they just had to hand over the gold certificate to the other party.Later, the goldsmith also discovered that the original certificate issued by himself had the function of circulation!So, they began to issue "false certificates."They were surprised to find that as long as all customers do not come to withdraw gold on the same day, the "false certificate" is equivalent to the "true certificate" and can also be used as currency!

This is the origin of "reserves" in modern banking and the origin of "money creation".This was the end of the 17s, and the modern bank was born from that time.Therefore, the earliest banks in the world were all private banks, and the earliest bank notes were issued by goldsmiths, who had no direct relationship with the government.

(End of this chapter)