Research On Svstematic Crisis Commercial Bank Based On Double Capital Constraints

The sudden bankruptcy of Lehman Brothers in September2008triggered a global financial crisis; there are many academic studies on the causes of the financial crisis, this paper argues that the study of the crisis cannot leave this main body:the bank, basically, the crisis is a bank system crisis. Many large banks who have qualified capital adequacy ratio before the crisis, get in trouble in the crisis, therefore the Basel Committee introduced the Basel III. By the reform of capital regulation, whether this would be able to fundamentally control systemic risk, and to avoid such a banking crisis? Will the free competition of banking system under the regulation be ability to circumvent the banking system crisis? How does the government play the role on banking management? Research on these issues has important practical significance.This paper argues that reasonable financial behavior in micro-banks does not necessarily sound reasonable macroeconomic results and could even lead to a macroscopic banking system crisis. The individual rationality brought about overall non-rational, is the unavoidable an important factor by study on the banking system crisis. Therefore, the overall idea of this paper is:study proceed with micro-financial behavior patterns of commercial bank which is under the dual capital constraints, and explore the reason why individual rationality resulting in the overall non-rational, and demonstrate if the regulation can avoid the banking system crisis, and proposed policy recommendations about management of the banking system.Commercial bank is in pursuit of expected profit maximization under the dual constraints of economic capital and regulatory capital. Economic capital constraint is the internal constraints, with a high degree of risk sensitivity, huge fluctuations in the economic boom and recession. In the boom, the economic capital constraint is low, individual rational choice of the free competition of commercial bank is credit expansion in order to obtain a higher income, but when all banks are so choose, can easily form a bubble of financial risks, resulting in overall non-rational; in the recession, individual rational choice is deleveraging in the banking security, but when all banks are so choose, can easily form a spiral tightening focus on selling, again lead to an overall non-rational. Therefore, the characteristics of the commercial banks to free competition and economic capital volatility has led to the situation that individual rationality cannot bring the whole rational, which is the root cause of the banking system crisis.There is a great limitation when regulation as the core to regulatory capital solves the problem of the overall non-rational. the convergence of regulatory capital and economic capital will cause non-rational phenomenon in the different periods; if there existed differences in risk sensitivity, then the individual rational choice of the bank is regulatory capital arbitrage, not only reduces the efficiency of supervision even higher risk, resulting in the overall non-rational; if the implementation of regulatory capital requirements which is counter-cyclical corresponding choice, not only in the period of prosperity, higher costs and a possible new class of banking and financing system, but also in the recession when the economic capital constraints a major role, the reduction in regulatory capital requirements will not solve the overall non-rational. The fundamental reason why regulatory capital cannot solve the problem of overall irrational conflict is that as an external governance mechanism, regulatory capital conflicts with internal governance mechanisms. With external regulation, it also can not solve the crisis in the banking system. In addition, the universal character of the regulatory system, resulting in regulatory authorities’ difficulty to make effective use of historical data to properly set the parameters of the regulatory model, and the stability characteristics of the regulation led to a reform of the regulatory process is too long, lack of flexibility. Therefore, the regulation the capital regulation as its core cannot circumvent the banking system crisis.The free competition of banking system under the regulation cannot avoid a systemic crisis, so there must be an overall rational institutions exercise control over the behavior of banks, this institution is government. This paper argues that a banking system should have characters of three elements, which is free competition, regulation and direct government control, and the government direct control is to the overall irrational situation brought by individual rational choice, not a substitute for banks to implement risk management.Innovation Ⅰ:The paper proposes that the bank system crisis is with the feature of individual rationality and the overall non-rational, starts from the micro-financial behavior of the banking industry, studies the systemic crisis of the whole banking sector; explains the micro-financial behavior of the banks considering the double capital constraints as the core of the optimum planning model, and explain RAROC indicators and regulatory capital arbitrage in this framework, and proposes the regulatory capital constraint concept.Innovation Ⅱ:By empirical methods, the paper verifies the volatility of the economic capital, the common trend of the inter-bank changes in economic capital and the impact on asset prices. Based on the empirical results, the two capital constraints due to the fluctuations of economic capital in different economic cycles may have different states, leading to whole irrational and systemic crisis of the commercial banks. When verifying the common trend of the inter-bank changes in economic capital, the paper adjusts the traditional factor analysis techniques by separating the trend factor.Innovation Ⅲ:The paper summarizes the characteristics of Regulation under the dual constraints of the analysis framework, which are externalities, universality, and stability. And proposes the capital regulation even all of the regulatory system are unable to fundamentally circumvent the banking crisis, at the same time proposes the banking system that free competition, the regulatory system and direct government control these three factors are combined with each other.