Regulation and supervision for foreign banks in China

Part 4: Personal suggestions for problems in part3(Based on Basel Accord) 

                                                 Overview of Basel Accord II

Suggestion 1: Regulators need pay more attention on risk regulation for foreign banks

According to the first pillar(minimum capital requirement) of Basel Accord II , banks should accept the standardized approach of credit risk rating generated by the external rating agency, which can be used to predict and measure risk. Also banks need have a internal risk rating system(Foundation IRB and Advanced IRB). So, I think Chinese banking regulators should learn the specific approach of Basel Accord and set up a complete and perfect the external rating agency system and the internal rating system, for example, set up some independent external rating agencies, develop the appropriate and competent risk rating model, also, banking regulators need a internal fundamental rating database for all foreign banks to regulate the credit, operational and market risk.

Suggestion 2: Regulators need strengthen international co-operation on foreign banks regulation

According to Basel Accord I, foreign bank regulation need a good co-operation between the home countries and the host countries. Home countries should be responsible for regulation on liquidity of their foreign bank branches, host countries should be responsible for regulation on capital adequacy of the foreign bank. Therefore, I would suggest China bank regulators strengthen co-operation with other countries. For instance, we can develop a system which can share the information of bank regulation between different countries. Also, we can set up some laws and regulations with other countries, which specify a appropriate information disclosure system for the foreign bank. All in all, every country in world are responsible for the financial security and stability, financial regulators of each country should get together to reduce the international financial risk.