As the cornerstone of the corporate legal system, the limited liability system has important values such as transferring risks, encouraging investment, gathering capital, reducing transaction costs, and promoting the separation of ownership and management rights. However, in the post-crisis era, the application of the limited liability system to systemically important financial institutions has limitations and shortcomings such as deviating from the financial regulatory objectives, leading to interest imbalance, causing moral hazard, and increasing the unfairness of financial market competition, which does not match the system design of crisis self-help by systemically important financial institutions. Therefore, it is necessary to “revise” the limited liability system of systemically important financial institutions, that is, to break the deadlock of limiting the liability of all shareholders to the investment amount, and to attach additional liability to major shareholders holding more than 5% of shares on the basis of their investment amount. The revision of limited liability is conducive to reducing the negative externality of China’s systemically important financial institutions, and meeting the special regulatory needs of China’s systemically important financial institutions, which has sufficient legitimacy. In terms of legal positioning, the revised limited liability system should still be included in the limited liability system, except for the application of limited liability in specific circumstances. In terms of liability calculation, the revised limited liability is not the amount of capital contribution of shareholders, but the uncertain liability calculated based on the average stock price of systemically important financial institutions in a period of time before entering the risk disposal process, and taking the institutional system relevance and its position in the financial system as the multiplier. In terms of risk exposure, the liability limit that shareholders will face is twice the average stock price of systemically important financial institutions in the 12 months before they enter the risk disposal process. In terms of the principle of liability fixation, the revised limited liability applies the principle of strict liability, aiming to improve the enthusiasm of shareholders to supervise the daily business activities of systemically important financial institutions. In terms of system connection, we must properly handle the connection between the revision of limited liability and other legal systems such as the Company Law and the Financial Stability Law, so as to ensure the effectiveness and operability of the revised limited liability system in the crisis-handling process of systemically important financial institutions, and provide important institutional guarantees for the sustainable and stable operation of systemically important financial institutions.
Revision of the Limited Liability of Systemically Important Financial Institutions: Basic Theory and System Construction
Journal of Shanghai University of Finance and Economics Vol. 25, Issue 01, pp. 139 - 152 (2023) DOI:10.16538/j.cnki.jsufe.2023.01.010
Cite this article
Chang Jian, Wang Qingyue. Revision of the Limited Liability of Systemically Important Financial Institutions: Basic Theory and System Construction[J]. Journal of Shanghai University of Finance and Economics, 2023, 25(1): 139-152.
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