Supervision needed

Despite exotic bank investments that have led Western financial institutions to the brink of collapse, innovative products are still needed - but the key to ensuring healthy development is strict supervision.

On the day when the share price of Citibank declined to less than $1, its total market value shrank to less than $6 billion, or some 40 billion yuan. In comparison, the market value of Industrial and Commercial Bank of China (ICBC) is 30 times that.

It is not only a comparison between two banks - the old and new world-leading banks - but that between two commercial models: the modern financial supermarket represented by Citibank, and the traditional deposit and loan business of ICBC.

The modern financial supermarket, with the innovation and sales of new products as the core, improves the liquidity of financial assets. The traditional banking model of attracting deposits and giving loans provides liquidity to the real economy. Now standing in the debris of former financial giants, can we say that it is wrong to boost financial innovations?

Though it escaped bankruptcy, the current Citibank is no longer the one it used to be. Does that mean the financial supermarket represented by the Citibank is a thing of the past?

It is the right direction to continue financial innovations, but efficient supervision must be put in place.

The tale of Citibank also indicates that "one-stop" financial services is a goal that cannot be realized. The ideal "one-stop" mode promoted by the Citibank represents the dream of a generation of financial experts. But that is bound to lead to market monopoly by a few financial giants, especially in markets of increasingly complicated financial products. The brand effect of a few financial giants will gradually replace strict supervision and careful selection from customers.

Shanghai Securities News

(China Daily 04/06/2009 page2)