A Study On Risk-taking Behavior Of Commercial Banks Based On The Capital Regulation

From the2007financial crisis, the scholars have come to the conclusion that thebanks should take the responsibility for its excessive risk-taking behavior, and called forrigorous constraints on it. Although the BIS had already formed a global uniformdcapital regulation rules, the effect of capital regulation is still debated. One is that thecapital regulation can effectively constrain the risk-taking behavior of commercialbanks, and another opposite. So, here is the question: with the use of capital regulationare all around the world, the academics are still questioning its effectiveness. After thestudy, we find that, in the absence of general theoretical framework of the study oncommercial bank risk taking behavior, there is a different caliber research and indicators,resulting in a different conclusion.My dissertation provides a new perspective ofcommercial banks’ risk-taking behavior based on capital regulation. The core of myessay is to subdivide the risk taking behavior into the risky incentive, risky strategy andrisk consequence. To achieve a better outcome, the commercial banks should not onlyconsider the capital regulation as a constraint, but also a policy instrument which canachieve the goal of optimization and precaution.With the development of the reform and opening, the Chinese economy has madegreat achievements and the financial industry has kept sustained and steadydevelopment. In2007, although many International banks suffered from this financialcrisis, the China’s banking does not lose at all. In2014, the English BANKER haspublished and264Chinese commercial banks were on the top1000list. In this situation,can we make a conclusion that the commercial banks in China have already had thestandardized risk-taking behavior? And further speaking, the commercial banks havealready reached the target of the optimization? In fact, we proved based on thePerspective theory and make a conclusion the banks in China does not consistent withthe performance of the International banks who can self-constrained its risk takingbehavior. Therefore, China’s high-yield commercial banks can not exhibit risk ofself-restraint, but make the same decision as the low-yield banks, then to maintain ahigh risk motives. Secondly, the banks in China hold the same philosophy and result inhigh homogeneity such as similar behavior patterns and risk exposures which increasingthe potential of systemic risk. Thirdly, the implicit deposit insurance in China whichmade the commercial banks sustained moral hazard and the deposit insurance systemwill implement in May2015. Finally, the capital regulatory established in2004, and we still have a lot space to improve it. Therefore, in order to maintain the stability of theentire financial system and to prevent the spillover effectμ of the bank’s risk-takingbehavior, the interaction of the capital regulation and bank risk-taking behavior isneeded and then provide the guidance for the practice.From the start, we defined the risk behavior of commercial banks, and using a newperspective to redefine the commercial bank risk-taking behavior as risk-takingincentive, risk-taking strategy and risk-taking consequence. Risk-taking incentivecomes from a unique mechanism which will make the bank transfer the risk todepositors and regulatory authorities. Risk-taking strategy requires the commercialbanks to make a combination between the high-risk and high-return. Risk-takingconsequences may not only cause the bank suffered huge losses itself, but also spreadthe consequence to the whole economy and even the global. Based on its characteristic,the best bank risk taking behavior is bound to bear the risk taking incentive, optimizethe risk taking strategy and prevent the risk taking consequences. From this point, wedeveloped a new perspective from the theory analysis and mathematical derivation, andfilled in the traditional theory that just focus on the restriction effect but ignore theoptimization and precaution effect. We pointed that the capital regulation can consideredas a effective policy tool through capital supplement to constrain the risk takingincentive, reduce the proportion of risk-weighted risk assets to optimize the risk-takingbehavior, compression assets of commercial banks to bear the consequences of riskprevention. The conclusion of my dissertation is harmonized with the practice of Baseland the International active banks. In the implement of Basel globally, the study oninteraction of capital regulation and bank risk taking behavior conforms to the trend ofhistorical development. My dissertation provided the theoretical foundation for China scommercial banks to solve how to make a further development under the conflict ofnature risk taking motivation and stringent capital regulation. Through multipleindicators and empirical methods to test the China s commercial banks risk takingbehavior under capital regulation, our result keeps robust. Through the experience ofinternational financial institutions and international active banks, we learned about whatwe lack of from the advanced standard, and then pointed out what we should do next.The biggest innovation of my dissertation is to break through the single perspectiveof the past research, and built a new theory framework for studying the commercialbanks risk taking behavior. Meanwhile, we put the Chinese commercial banks under this framework and do some empirical test. The conclusion is that capital regulation hasdifferent effects on the risk taking incentive, risk taking strategy and risk takingconsequence, and then give an interpretation on the divergence caused by differentstatistical indicators and different definition on risk taking behavior. Particularly, thetheoretical framework can provide a new perspective and idea on the study of therelationships between the bank risk taking behavior and the franchise value, the depositinsurances system，the monetary policy and the corporate governance.