What is the financial system? The financial system
The information-providing function of the financial system means that on the financial marekt, not only investors can obtain information on the prices of various investment instruments and the factors that affect these prices, but also fundraisers can obtain information on the cost of different financing methods, and management departments can obtain information on whether financial transactions are being conducted normally and whether various rules are being followed.
What is the financial system?
In reality, countries around the world have different financial systems, and it is difficult to generalize in a relatively uniform model. Intuitively, one of the more significant differences between the financial systems of developed countries is reflected in the importance of financial marekting and financial intermediation in different countries.
overview
In reality, countries around the world have different financial systems, and it is difficult to generalize in a relatively uniform model. Intuitively, one of the more significant differences between the financial systems of developed countries is reflected in the importance of financial marekt and financial intermediation in different countries. There are two extremes here, one is Germany, where several large banks play a dominant role, and financial marekt is not important; the other extreme is the United States, where financial marekt plays a large role, and the degree of bank concentration is very large. In between these two extremes are other countries, such as Japan and France, which have traditionally been dominated by banks. Canada and the United Kingdom have more developed financial marekt than Germany, but the degree of concentration of the banking sector is higher than that of the United States.
From a general perspective, the financial system is the basic framework for the flow of funds in an economy. It is a combination of various financial elements such as financial instruments (financial assets), market participants (intermediaries), and transaction methods (markets). At the same time, due to the strong externalities of financial activities, it can be a quasi-public good to a certain extent. Therefore, the government's regulatory framework is also an inseparable part of the financial system.
A financial system consists of several interrelated components:
Financial Sector (Financial Institution Groups, Markets, which provide financial services to the non-financial sectors of the economy)
Second, financing models and corporate governance (FinancingPattenandCorporateGovernance, the financing behavior of residents, enterprises, and governments, as well as basic financing instruments; an organizational framework that coordinates the interests of all parties involved in the company);
Third, the regulatory system.
The financial system is not a simple addition of these parts, but rather a mutual adaptation and coordination.
Therefore, the difference between different financial systems is not only the difference between their components, but also the difference in their mutual relationship and coordination.
content
The financial system includes five aspects: financial regulation system, financial enterprise system (organizational system), financial supervision system, financial asset structure financial marekt system, and financial environment system.
(1) The financial control system is not only an integral part of the national macro-control system, but also includes the coordination of monetary policy and fiscal policy, maintaining the stability of currency value and total balance, improving the transmission mechanism, doing a good job in statistical monitoring, and improving the level of regulation and control. It is also a financial macro-control mechanism, including interest rate marketization, interest rate formation mechanism, exchange rate formation mechanism, capital account convertibility, payment and settlement system, and the organic combination of financial marekt (currency, capital, insurance).
(2) The financial enterprise system includes not only modern financial enterprises such as commercial banks, securities companies, insurance companies, trust and investment companies, but also the reorganization and reform of the central bank, state-owned commercial banks, policy banks, financial asset management companies, small and medium-sized Financial Institutions Groups, the development of 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 a market exit system, enhancing the transparency of regulatory information, accepting social supervision, handling the relationship between supervision and support for financial innovation, and establishing a regulatory coordination mechanism (banking, securities, insurance, and with the central bank and the financial sector).
Separate operation and supervision: Banking Regulatory Commission, Securities Supervision Commission, Insurance Regulatory Commission.
Unified supervision of mixed operation
(4) The financial marekt system (capital markets) includes expanding direct financing, establishing a multi-level capital markets system, improving the structure of capital markets, enriching capital markets products, promoting the construction of venture capital and growth enterprises market, expanding the bond market and expanding the scale of corporate bond issuance, developing institutional investors, improving the trading, registration and settlement system, and steadily developing the futures market.
(5) The financial environment system includes establishing and improving a modern property rights system, improving the corporate governance structure, building a national unified city, establishing and improving a social credit system, transforming the government's economic management functions, and deepening the reform of the investment system.
basic function
financing function
The financing function of the financial system has two meanings. Mobilize savings and provide means of liquidity. Financial marekts and bank intermediaries can effectively mobilize the savings resources of the whole society or improve the allocation of financial resources. This allows the efficient technology of initial investment to be quickly converted into productivity. While promoting more efficient use of investment opportunities, financial intermediaries can also provide relatively high returns to social savers. The main advantage of financial intermediaries in mobilizing savings is that they can diversify the risk of individual investment projects and provide investors with relatively high returns (relative to real assets such as consumer durables). Mobilizing savings in the financial system can provide an aggregation function for scattered social resources, thus leveraging the scale effect of resources. The liquidity services provided by the financial system effectively solve the problem of capital sources for long-term investment, provide the possibility for long-term project investment and corporate equity financing, and create a channel for the supply of funds for technological progress and venture capital.
Equity refinement function
Divide large investment projects that cannot be divided into small shares, so that small and medium investors can participate in the investment of these large projects. Through the function of equity refinement, the financial system realizes the supervision of managers and the control of companies. In the modern market economy, the company organization has undergone profound changes, that is, the high degree of decentralization of equity and the professionalization of company management. The biggest difficulty of such an organizational arrangement is the existence of asymmetric information, which makes it difficult for investors to effectively supervise the use of capital. The function of the financial system is to provide a new mechanism, that is, to strictly supervise the company through the role of external lenders, so that the interests of internal investors can be protected.
resource allocation function
Raising sufficient resources for investment is a necessary condition for economic take-off. But investment efficiency, that is, the efficiency of resource allocation, is just as important for growth. Allocation of investment has its own difficulties, namely productivity risk, incomplete information on project returns, and uncertainty about the actual capabilities of operators. These inherent difficulties require the establishment of a financial intermediary. In modern uncertain societies, it is difficult for individual investors to evaluate companies, managers, and market conditions. The advantage of the financial system is to provide intermediation services for investors, and to provide a mechanism for sharing risks with investors, so that the investment allocation of social capital is more efficient. The investment services provided by Intermediary Financial Institution Groups can be manifested in: first, risk diversification; second, liquidity risk management; third, project evaluation.
risk management function
The risk management function of the financial system requires the financial system to trade and price the uncertainty of medium and long-term capital investment, that is, the risk, and form a risk-sharing mechanism. Due to the existence of information asymmetry and transaction costs, the role of the financial system and the Financial Institution Group is to trade, disperse and transfer risks. If social risks cannot find a mechanism for trading, transferring and offsetting, the operation of the social economy cannot proceed smoothly.
incentive function
In economic operation, the incentive problem exists not only because the goals or interests of the economic individuals who interact with each other are inconsistent, but also because the realization of the goals or interests of each economic individual is affected by the actions of other individuals or the information they have. That is, the factors that affect the interests of an economic individual are not all under the control of the subject. For example, the separation of ownership and control in modern enterprises produces incentive problems. There are many ways to solve incentive problems, and the specific methods are affected by the economic system and economic environment. The methods provided by the financial system to solve incentive problems are stocks or stock options. By allowing the managers and employees of the enterprise to hold stocks or stock options, the efficiency of the enterprise will also affect the interests of the managers and employees, so that the managers and employees can try their best to improve the performance of the enterprise, and their behavior is no longer contrary to the interests of the owner, thus solving the principal-agent problem.
information providing function
The information-providing function of the financial system means that on the financial marekt, investors can not only obtain information on the prices of various investment varieties and the factors that affect these prices, but also fundraisers can obtain information on the cost of different financing methods, and management departments can obtain information on whether financial transactions are being conducted normally and whether various rules are being followed, so that different participants in the financial system can make their own decisions.
