First, with the transitional period coming to an end for China’s accession to the WTO, the national treatment in place and the gradual easing of market entry, financial institutions shall face even bigger international competition. The commitments China made when joining the WTO and the requirements of the Chinese economy itself call for the accelerated development of the financial market.
In the past, it has been argued that market discipline can play a key role in incentivizing market participants to limit their excessive risk taking activities. The events of the last few years, however, have proved the inadequacy of market discipline. Bankers have been found to be actively engaged in risktaking activities disguised as value-creation.