Achieving Financial Stability and Resilience: How China Could Learn from the United States and the United Kingdom in Building a Financial Safety Net – Part I

TY - JOUR

T1 - Achieving Financial Stability and Resilience: How China Could Learn from the United States and the United Kingdom in Building a Financial Safety Net – Part I

AU - Lu, Lerong

AU - Ren, Ci

PY - 2025

Y1 - 2025

N2 - China has quickly emerged as a main player in the global financial arena. It has some of the largest commercial banks in the world. It is undergoing transition from state-dominated financial institutions to a more market-based sector. The financial liberalisation has unleashed the growth potential and efficiency of China’s financial sector, which is likely to be a key driver in the country’s economic recovery and growth after the COVID-19 pandemic. However, it also increases the possibility of bank runs and financial crises which used to be uncommon in the socialist market economy. China’s financial regulatory framework has been built upon the state-centred banking system dating back to the plan economy and early stages of market economy, which is not always updated and sometimes restricts the further growth of its financial sector. It has not been fully adapted to the industry growth and financial liberalisation. Neither could it effectively cope with the rise of financial technology (Fintech), like digital pay or the development of artificial intelligence (AI) in the country’s financial sector. Against this background, this multi-part article is the first piece of research work to look at China’s latest financial regulatory architect reform, by focusing on the changing institutional structure of financial regulation and the building of a new financial safety net (FSN). It argues for the necessity and urgency for China to introduce a modern FSN to accommodate the liberalisation, innovation, and internationalisation of its financial industry. FSN plays a vital role in maintaining the systematic stability of financial industry. This first part of this article explains why now is the right time for China to introduce a financial safety net. Future parts of this article, to be published in upcoming issues of The Banking Law Journal, will consider three pillars of FSN: deposit insurance system, lender of last resort regime, and bank insolvency regime. It refers to the experience of the United States, United Kingdom, and other developed economies with mature financial systems. This article provides an insight into China’s financial system and regulatory framework, which is useful for readers in the West to fully understand the rising financial power of China and how this affects the global economy and geo-political environment. It is also valuable for researchers, academics, practitioners, and law and business school students who have an interest in the global financial industry and Chinese economy.

AB - China has quickly emerged as a main player in the global financial arena. It has some of the largest commercial banks in the world. It is undergoing transition from state-dominated financial institutions to a more market-based sector. The financial liberalisation has unleashed the growth potential and efficiency of China’s financial sector, which is likely to be a key driver in the country’s economic recovery and growth after the COVID-19 pandemic. However, it also increases the possibility of bank runs and financial crises which used to be uncommon in the socialist market economy. China’s financial regulatory framework has been built upon the state-centred banking system dating back to the plan economy and early stages of market economy, which is not always updated and sometimes restricts the further growth of its financial sector. It has not been fully adapted to the industry growth and financial liberalisation. Neither could it effectively cope with the rise of financial technology (Fintech), like digital pay or the development of artificial intelligence (AI) in the country’s financial sector. Against this background, this multi-part article is the first piece of research work to look at China’s latest financial regulatory architect reform, by focusing on the changing institutional structure of financial regulation and the building of a new financial safety net (FSN). It argues for the necessity and urgency for China to introduce a modern FSN to accommodate the liberalisation, innovation, and internationalisation of its financial industry. FSN plays a vital role in maintaining the systematic stability of financial industry. This first part of this article explains why now is the right time for China to introduce a financial safety net. Future parts of this article, to be published in upcoming issues of The Banking Law Journal, will consider three pillars of FSN: deposit insurance system, lender of last resort regime, and bank insolvency regime. It refers to the experience of the United States, United Kingdom, and other developed economies with mature financial systems. This article provides an insight into China’s financial system and regulatory framework, which is useful for readers in the West to fully understand the rising financial power of China and how this affects the global economy and geo-political environment. It is also valuable for researchers, academics, practitioners, and law and business school students who have an interest in the global financial industry and Chinese economy.

KW - Financial Regulation

KW - Banking Law

KW - Financial Safety Net

KW - Deposit Insurance

KW - Lender of Last Resort

KW - Bank Insolvency

KW - Financial institutions

KW - Financial markets

KW - China

KW - US

KW - UK

KW - Financial Stability

KW - Financial Consumer Protection

M3 - Article

SN - 0005-5506

VL - 142

SP - 114

EP - 122

JO - BANKING LAW JOURNAL

JF - BANKING LAW JOURNAL

IS - 3

ER -