Research On Chinese Commercial Banks’ Capital Regulation Under The New Regulatory Framework

Commercial banks are the economic entities of China’s financial sector; whethercommercial banks run soundness is directly related to the security, stability and thehealthy development of China’s financial sector and the real economy. All the time,capital regulation is the core content of commercial banks’ regulation, improving thelevel of capital adequacy ratio, ensuring the quality of capital is a long time purposeall banks must uphold to carry out, which cannot be shaken. However, the globalfinancial crisis in2008exposed the shortcomings of the original capital regulatorysystem of commercial banks, the original international commercial banks’ capitalregulatory standards "the New Basel Capital Accord" can no longer adapt to thecomplex international financial environment, so " the Basel Capital Accord Ⅲ "cameinto being, and also opened a new transformation of the global banking capitalregulation system. In this context, an in-depth study of the Basel Capital Accord Ⅲand its concrete application in Chinese commercial banks is not only of theoreticalsignificance, but also a strong practical significance.This paper follows the technology route: from theory to practice. First of all,elaborating commercial banks’ capital regulation theory is the theoretical basis of thecapital regulation, which respectively concludes the aspects of control theory, theeconomics theory of capital regulation, principles of capital regulation, as well ascapital regulatory principles specifically addressed. Analyzing the Basel CapitalAccord Evolution theoretically, on the basis of combing Basel Capital Accord from Ito Ⅲ, one conclusion is that capital regulation has always been the focus of thecontent of the Basel Capital Accord, it’s necessary for commercial banks toimplement the capital supervision. Based on this, the paper establishes the scope of itsstudy: the study of Chinese commercial banks’ capital regulation based on BaselCapital Accord Ⅱ and Ⅲ.On the basis of a systematic review of the dynamic changes of Chinesecommercial banks’ capital regulation, combined with the latest requirements of thecapital regulation under Basel Capital Accord Ⅲ, from a practical point of view, thepaper selected three of the most important issues of capital regulation studies:research on building the new mechanism of capital complementation; study on building counter-cyclical capital regulation mechanism as well as a dual regulatoryindex system Construction.The research on building new Capital mechanism first studied the Chinesecommercial banks’ traditional capital supplementary channels: supplement of corecapital and supplementary capital, combined with the latest requirements of the BaselⅢ the results show that the traditional capital complement pathway has been difficultas the main source of capital replenishment of the commercial banks in the new era.Therefore, the paper combined the latest research developments of the internationalacademic community, starting from a double standard to improve the quantity andquality of capital, introduced a innovative tools-Contingent Capital as an effectivecapital supplement. through researching the connotation of contingent capital,operation mechanism, the basic characteristics, the trigger conditions and preliminaryproposals for using contingent capital in China’s commercial banks, the results showthat:(1) Contingent capital which is a necessary capital supplement tool will favor ofglobal banking regulators and banking capital management, and effective propulsion.(2) Contingent capital instruments used in Chinese banking industry should use thedouble trigger event, and we need to determine the trigger variable by financialindicators combined with the market data.In the part of construction of counter-cyclical capital regulation mechanism, thepaper mainly discusses the four aspects:(1) from the point view of practical needs,stating the importance of Chinese banking industry to build counter-cyclical capitalregulation mechanism.(2) With empirical analysis of the capital buffer cost model,the paper analyzed the relationship between the capital buffer and the economic cyclefluctuations, and obtained the Chinese commercial banks’ capital is counter-cyclicalin a large sample size, while pro-cyclical characteristics in the small sample size,illustrated capital buffer have a characteristics of dynamic changes with the economiccycle.(3) Under Basel Ⅲ counter-cyclical capital buffer drawing methods, the paperempirically concluded the Chinese commercial banks’ counter-cyclical capital bufferprovision during the sample period.(4) The counter-cyclical capital buffer mechanismis systematic projects, which needs from easing pro-cyclical characteristics of theminimum capital requirement, to build forward-looking loss provisioning policies andeffective co-ordination of macroeconomic policies and so on.In the part of construction of dual supervision index system, this article commence in two major areas: the complementation of capital adequacy ratio systemand construction of leverage ratio regulatory system. Through Examining the majorcountries’ capital adequacy ratio and leverage ratio, combined with the personalpractice of Chinese commercial banks’ capital regulation over the years, analyzedthe main problems of the single capital adequacy ratio of regulatory indicators: thepro-cyclical, regulatory arbitrage and so on. Leverage ratio and capital adequacy ratiocan only be matched to construct a dual regulatory system, in order to overcome theabove drawbacks, and enhance the effectiveness of capital regulation.