Stability and Risk of Financial Holding Companies—Taking the Chinese CITIC Group as Example

Abstract

With the development of financial mixed operation, in order to enhance the financial competitiveness, more and more countries are accelerating the pace of from separate operation to mixed operation. Except bringing the advantages, financial holding company has also faced great challenges at the same time. Therefore, establishing the corresponding mixed supervision system and improving the competitiveness of the financial holding company have become the most important tasks for China’s financial industry. Taking the Chinese CITIC International Financial Holdings Limited as an example, we focus on comparing economies of scale, economies of scope as well as the study of stability and risk, based on theoretical analysis and empirical analysis methods. The results show that most of the China Financial Holding Company Limited did not reach the greatest economies of scale and scope because of the restrictions on their own management and management experience. Secondly, the higher risk of securities will not increase the risk of major financial institutions such as banks. Thirdly, the risk of subsidiaries in financial holding companies is relatively low, compared with others in separated operation. In addition, we analyze the transmission mechanism and internal transaction risk of the financial holding company, innovatively propose “Incentive Conflict Concept” in subsidiary of internal and external risk control. Finally, the paper suggests that the financial holding companies should attach great importance to internal risk control, improve their management and integrated resource ability. More importantly, the external supervision mechanism needs to improve supervision mechanism design for the mixed supervision, as much as possible to achieve regulatory objectives of incentive compatibility.