Private banking development in China under two organizational structures:Economic analysis from an organizational innovation perspective

This paper investigates optimal decisions for private banking development in China under two innovative organizational structures—the big retail mode(BRM)and the independent development mode(IDM).Under the BRM,the retail and private banking divisions form a cooperative relationship wherein the former transfers highnet-worth customers to the latter.In addition,retail banking receives a share of private banking revenues.We investigate the optimal revenue-sharing ratio between the two divisions and the optimal effort by private banking to serve transferred customers within the cooperative relationship.The analytical results show that as the private banking division becomes more developed,the optimal revenue-sharing ratio decreases,and the private banking division’s optimal effort to serve transferred customers decreases because it puts more effort into acquiring new customers.Under the IDM,the two divisions form a competitive relationship since they compete to acquire customers independently.We investigate customer acquisition efforts in this interdivisional competition.Optimal customer acquisition efforts by both divisions increase in potential assets and rates of return.This paper contributes to the literature by(1)analyzing financial innovation by private banks from an organizational perspective;(2)providing an economic analysis for private banking development in China.

Economic Restructuring Needs More Private Banks

New private banks are being established,according to Shang Fulin,Chairman of the China Banking Regulatory Commission(CBRC),Speaking at an annual conference of city commercial banks held in Nanchang,Jiangxi Province,on September 22-23,Shang said that this year,the CBRC has completed feasibility studies of14 prospective banks--three have been approved so far,On October 12,The National Development and Reform Commission issued a policy document,requiring