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Regulation the answer to crisis, says expert

CHINA will rely more on financial regulation while enhancing market mechanisms, learning a lesson from the financial crisis, a banking regulator said today.

The wake of the financial crisis showed that neoliberalism was flawed and more government intervention was needed.

"Regulators should balance between market discipline and government intervention," said Liao Min, director general of the executive office at the China Banking Regulatory Commission.

China's market mechanisms still need many improvements and at this stage China will rely more on financial regulation, he said in an article published at the Asian Banker today.

"The right way to go is in directing regulation with risk and principle-based supervision, which properly balances the relationship between government and market," he said.

He said combining the roles of government and market can effectively repair market failure, reduce moral hazards and lay a healthy foundation for market discipline.

Although China and the United States apply different regulatory frameworks, and face unique challenges in their market fundamentals, China can still offer lessons in terms of regulatory efficiency in keeping up with the development of the global financial market, he said.

He urged strengthening the supervision of cross-business and cross-border risks, and ensuring that the risk controls for financial institutions are on a par with financial innovation and market evolution.

Regulators should always stay on top of systemic risks rather than simply ensuring the safety and stability of each single entity, he added.

Cultivating professional financial intermediaries is the way to upgrade the marketplace infrastructure for better financial supervision, risk management and innovative activities.

"China, as an emerging financial market and economy, badly needs all this," he said.


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