Evolutionary Game Analysis of Financial Regulation and Innovation Under Asymmetric Conditions

Hua Jinliang

doi:10.11648/j.eco.20170605.11

Abstract

The loose financial supervision and excessive financial innovation will lead the country to heavy losses in financial crisis. So how to balance the relationship between financial supervision and financial innovation and make financial supervision and financial innovation to achieve complementary has become a hot issue. The financial supervision and financial institutions are a process of repeated game, but the research on them is still in a superficial stage. Therefore, this paper uses evolutionary game theory and method to analyze the dynamic replication system of asymmetric evolutionary game of two groups of financial institutions and regulators in China. And the evolutionary stable state of the system under different conditions is analyzed. The conclusion is that under different parameter values, the other side adopts different strategies, and the system will tend to different equilibrium states.

Highlights

Introduction and Literature ReviewIn the era of economic globalization, financial innovation has gradually become the development of the main theme, but excessive financial innovation and loose financial supervision will lead to economic losses
Koo and Park (2013) in the subprime crisis as a starting point for the research on this problem, the results showed that there was a mismatch between financial supervision and financial innovation [7]
Do some explanations to the game model: first, financial regulators in this paper refers to the People's Bank Of China (PBOC), China Banking Regulatory Commission (CBRC), China Securities Regulatory Commission (CSRC) and China Insurance Regulatory Commission (CIRC)

Summary

Introduction and Literature Review

In the era of economic globalization, financial innovation has gradually become the development of the main theme, but excessive financial innovation and loose financial supervision will lead to economic losses. Financial innovation can bring benefits while compliance management can reduce the risk These two are contradictory unity, and the lack of any one will have a huge impact on the development of banks and social economy. Different scholars have carried out different perspectives on this hot spot, research results could be roughly divided into two categories: the first category was that supervision and financial innovation was a causal relationship. Li Shusheng and Qi Jingyu (2008) believed that the relationship between the two was an interactive equilibrium process, which promoted each other in the interaction and mutual causation Their dynamic changes made financial supervision work to be adjusted and changed. This paper is based on the idea of evolutionary game theory to study the financial supervision and financial institutions from the perspective of dynamic game process and research under different parameters in both steady states. Compare the differences under different parameters and propose reasonable suggestions

Game Model Construction

Result

Conclusions

Suggestions