Abstract

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Title:: The Logic of Institutional Changes and Risk Prevention of Local Banks under Local Governments Shareholding

Keywords:: local small and mediumsized banks; institutional changes; government shareholding; risk prevention

Abstract:: Local governments invest in shares of banking institutions, which does not only blur ownership, but also forms a type of transitional ownership. Local governments capital is allowed to be invested into the banking sector, which aims to reflect the matching principle of responsibility, power and right. This, however, may lead to local banking institutions reduction to local governments “cash machines”. This will cause such consequences as: credit expands, government loans grow inappropriately, credit concentration increases, the regional gap between the rich and the poor widens, and vulnerable groups have more difficulties in obtaining loans. Only when the private banks are given fuller property rights and become the first action group, can property replacement be likely to occur, and then can the government gradually withdraw from the banks equity control field, so that private banks will become the subject of indirect financing channels, ultimately dispersing and dissolving financial risks.