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November 28, 2005
China Unlikely to Allow Foreign Control of Banks
China is unlikely to allow the country’s banks to be controlled by foreign ownership, and the central government is likely to maintain majority stakes for the foreseeable future. So says Guo Shuqing, chairman of China Construction Bank Corp., in a published interview.
The same China Construction Bank recently sold a minority stake to Bank of America. There’s nothing particularly magic in the control, and therefore management oversight, of Bank of America, a bank whose own track record in not the most stellar this nation’s banking industry has ever seen.
At the same time, subjecting banks to market discipline, even without loss of "control", is the wisest public policy in the long run, in our view.
We’ve proved as much in the United States with the savings & loan debacle of the 1980s. Many of the institutions which failed were mutual-owned and not subject to shareholder pressure. Moreover, federal and state regulation of these institutions was completely bungled. The ultimate cost to the U.S. government for this mess was about $175 billion.
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