Analysis of Risk Control Rights Allocation in Financial Holding Company

Risk control is always the most concerning issue for financial institutions including financial holding company (FHC). Based on the organization design theory and principal-agent model, we analyze the risk control rights allocation between the parent company and the subsidiary company inside FHC. The results show that when the FHC faces external risk, costs of risk control for parent company are lower than that for subsidiary company, thus centralization dominates decentralization; when it faces internal risk, the status of parent company and subsidiary company are reverse and decentralization dominates centralization.