An analysis of the choice between separated and mixed operation model for ICBC( London)
Since the fifth wave of Merge and Acquisition in the 1990s, the global banking industries have developed towards the direction of large-scale, international and omnipotent banks. The mixed operation of the commercial banks had already been the leading trend in the 21st century. With China’s entrance into WTO at the end of last century, the Chinese financial institutions, especially the Chinese bank industries, are destined to participate in the global economy and to face the keen competition from the "financial conglomerate" of the western developed countries. The commercial banks still operate separately at present according to the law. Being the important part of Chinese financial market, the Industrial and Commercial Bank of China (ICBC) as one of the big-four state-owned commercial banks should make an important decision on whether or not fully introduce the mixed operation for operating in UK. This study analyzes the difference of the operation model of HSBC and ICBC are operating in the UK at present, and examines the advantages and disadvantages of both separated and mixed operation for ICBC (London). Furthermore, it proposes the realistic choice of operation model for ICBC (London) under the existing Chinese financial system and the market condition of UK. This paper argues that the separated operation model of ICBC and investment banks in the short term will not change. The internally integrated operation model in terms of mixed operation which through restructuring to concurrently operate investment bank business within the ICBC (London), should be the realistic choice. The operating advantages in terms of low risk and high efficiency of the Group Banking form will be the development orientation for ICBC (London). Chapter 1
1.1 Background to the Research
November 4, 1999 the U.S. Senate and House passed the “Financial Services modernization Act” to repeal the “Glass-Steagall Act” enacted in 1933(Wen, 2009). It ends the separated operation and separate supervision to the banking, securities and insurance, and opened a new era in the financial industry to mixed operation. Also it marks the mixed operation model occupied the dominant position in the international financial community. Under the role of market forces, the United Kingdom, Japan, Canada and other western countries have also given up the major sub-sector financial management system, and re-established the mixed financial system. The establishment of British Financial Services Authority (FSA) has been practiced for ten years. It has shown that the implementation of mixed operation and mixed supervision of the reform is successful for UK financial industry (Ojo, 2005). The integration of commercial banking and investment banking business became the global financial industry trends (Xu, 2002).
ICBC is a market leader in the China in many business areas of commercial banking. It occupies the biggest market share among the big-four state-owned commercial banks in terms of capitalization, profitability and the volumes of deposit and loan. It operates through 16,232 outlets across China, 162 overseas subsidiaries and a global network of more than 1,504 correspondent banks as well as Internet Banking, Telephone Banking and self-service banking (www. icbc.com.cn). ICBC (London) was established in 2003, and grew dramatically on total capitalization and the scope of the business. However, under the Chinese Financial Law, it still uses the separated operation model in UK.
1.2 Significance of the Problem
The operation and supervision model of China’s financial banking are different from any of other countries’. Recalling the journey of China’s financial business operations, in 1993, the operation model of Chinese financial industry had changed from mixed operation to separated operation. Prior to 1993, China adopted a mixed...
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