2016/10/3 Contents Chinese financial markets Commercial banks and Basel accord Part 2: The Chinese Banking System Current Banking System in China Banking System Reform in China Shadow Banking and Internet Finance in China Sept. Dec 2016 By Zhang Xiaorong Commercial Banks Commercial banks are the financial institutions that 2.1 Commercial Banks and basel provide services, such as accepting deposits, giving Accord business loans and auto loans, mortgage lending, and basic investment products like savings accounts and certificates of deposit. Other services include bank and credit cards, private banking, custody and guarantees, cash management and settlement as well as trade finance ommercial bank performance is very much linked to Balance sheet of a commercial bank Capital Requirements for Banks Liabilities Commercial banks are high leveraged institutions 95 where equity accounts for a small percentage in the total assets Government bonds 15 Equity Mortgage loans result if depositors decide to withdraw Derivatives trading brings contingent and off-balance Other assets sheet obligations for banks. That's why the Basel Committee sets risk-based Total liabilities capital requirements for commercial banks 12016/10/3 1 Chinese Financial Markets Part 2: The Chinese Banking System Sept.-Dec.2016 By Zhang Xiaorong Fudan University, Shanghai, China 2-1 Contents • Commercial Banks and Basel Accord • Current Banking System in China • Banking System Reform in China • Shadow Banking and Internet Finance in China2-2 2.1 Commercial Banks and Basel Accord 2-3 Commercial Banks • Commercial banks are the financial institutions that provide services, such as accepting deposits, giving business loans and auto loans, mortgage lending, and basic investment products like savings accounts and certificates of deposit. • Other services include bank and credit cards, private banking, custody and guarantees, cash management and settlement as well as trade finance. • Commercial bank performance is very much linked to economic growth. 2-4 Balance Sheet of a Commercial Bank 2-5 Assets Liabilities Cash 10 Deposit 95 Government bonds 15 Equity 5 Mortgage loans 20 Other loans 50 Other assets 5 Total assets 100 Total liabilities 100 Capital Requirements for Banks • Commercial banks are high leveraged institutions where equity accounts for a small percentage in the total assets. • Insolvency (the disability in paying the debt) may result if depositors decide to withdraw. • Derivatives trading brings contingent and off-balance sheet obligations for banks. • That’s why the Basel Committee sets risk-based capital requirements for commercial banks. 2-6