Research On The Counter-cyclical Capital Bulid-up Mechanism And Effectiveness Of Commercial Banks In China

In 2008,the global financial crisis exposed major defect in financial regulation,triggered reflection on the pro-cyclical nature of the existing regulatory system,and also prompted the emergence of new regulatory concepts.In 2010,Basel ? was promulgated from the perspective of macro-prudential regulation,replacing Basel II from the perspective of micro-prudential regulation.Subsequently,the regulatory authorities of various countries have launched financial regulatory reform programs,and strengthened the supervision of the financial system from a macro-prudential perspective.The important content of macro-prudential supervision system includes constructing a counter-cyclical regulatory mechanism to ease the pro-cyclicality of the financial industry.As an important part of Basel ?,counter-cyclical regulation aims to smooth out economic cycle fluctuations in the form of “make up for possible shortages with surpluses” and mitigate systemic risk accumulation to achieve macro-prudential regulation goals.The building-up of counter-cyclical capital buffer requires that commercial banks should increase the capital buffer during the period of economic upswing and dynamically adjust the capital adequacy ratio in order to meet the decline in capital adequacy ratio during the economic downturn.Under the framework of counter-cyclical supervision,this paper studies the counter-cyclical capital supervision policy of commercial banks in China.The thesis focuses on the institutional design of counter-cyclical supervision.Firstly,it empirically tests whether the capital buffer of banks in China has periodic characteristics.It provides an empirical basis for the regulatory authorities to implement the counter-cyclical capital buffer and the necessity of implementing differentiated supervision of different types of banks and different cyclical stages.Secondly,focusing on counter-cyclical capital buffer building-up,this paper explores the practicability of “deviation of credit / GDP” recommended by Basel Committee as “linked variable” and the bulid-up mechanism in China,and provides a reference for the design and perfection of counter-cyclical supervision system under the framework of macro-prudential supervision in China.Finally,this paper empirically proves the effectiveness of the counter-cyclical buffer policy in China by examining the supervision result of counter-cyclical buffer.The main conclusions are as follows:(1)Different types of banks in China show differentiated characteristics of procyclicality,which means that the introduction of countercyclical capital policies in China has practical significance.Through empirical research,this paper finds that there is a certain procyclicality in China's bank industry,and the performance of different banks varies between different economic cycle stages.There is a significant difference in the capital buffers of China's large state-owned commercial banks and joint-stock commercial banks.After controlling for other factors,the buffer of large state-owned commercial banks showed significant procyclicality,while the joint-stock commercial banks did not exhibit periodic characteristics,while the overall capital buffer of banks did not exhibit periodic characteristics;Furtherly controlling the economic cycle,the joint-stock commercial banks and overall samples did not present significant procyclical characteristics,while the five large state-owned banks did not exhibit procyclical characteristics when the economy boom,but it goes significant during economic bust.The existence of a certain procyclicality indicates that China's banking industry may indeed need to build up countercyclical capital buffer to resist systemic risks.(2)The counter-cyclical capital buffer build-up mechanism based on the deviation of bilateral HP filtering credit/GDP index can better adapt to China's reality.Through factor analysis,this paper verifies that the credit/GDP deviation index has a good early warning capability for risks,and then uses the simulation method to calculate the historical building up of China's countercyclical capital buffer.According to the unilateral filtering and bilateral filtering indicators,the paper simulates the historical situation of the amounts of countercyclical capital.Through simulation experiments,it is found that build-up of countercyclical capital buffer can improve the overall risk resilience of the bank industry.From the simulation situation,commercial banks did accrue counter-cyclical capital buffers when the credit grew too fast,which improved the risk resilience,and the warning of bilateral filtering indicators was more accurate.The corresponding counter-cyclical capital build-up historical data is more in line with China.(3)the counter-cyclical capital build-up mechanism can actually reduce the banks' risk and improve the banks' ability of risk management.This paper approximates the effectiveness of countercyclical capital build-up mechanism by verifying the effectiveness of countercyclical capital regulation.Through the setting of differentiated regulatory pressure variables,this chapter empirically tests the effectiveness of the “Commercial Bank Capital Regulation Method(Trial)” and the Macro-Prudential Assessment system.The empirical results show that for lack of a counter-cyclical regulatory mechanism,the impact of Commercial Bank Capital Regulation Method regulatory pressure on bank capital adjustment behavior is not significant.The MPA system incorporates a dynamic counter-cyclical capital supervision mechanism,which greatly strengthens the supervision of bank capital to reduce the risk of the entire banking system.The results show that after the addition of countercyclical capital buffer requirements,the impact of regulatory pressures becomes significant,and banks will actively reduce operational risks under regulatory pressure.Therefore,accumulating countercyclical capital buffers can indeed reduce bank risks.The possible innovation of this paper is mainly embodied in the following three aspects:(1)This paper explores the cyclical characteristics of banks' capital in China form the perspectives of different bank types and different economic stages.Traditional literature mostly regards China's banking industry as a whole.When it comes to the reality,the capital buffers of different types of banks may have different characteristics,and mixed discussion may lead to a wrong way.The study found that different from the traditional research results,different types of banks in China show different periodic performances in different economic stages.This result also provides theoretical support for regulators to implement differentiated regulation methods.(2)This paper adopts the method of data simulation to verify the theoretical validity of the countercyclical capital buffer build-up mechanism.Based on the analysis of the risk status of China's banking industry,this paper verifies that the credit/GDP indicator can better judge the over-rapid growth of social credit and the accumulation of systemic risk.Furthermore,this paper comes up with bilateral filtering methods.Based on the credit/GDP indicators of unilateral filtering and bilateral filtering,the historical accumulation of countercyclical capital in China's banking industry is calculated.The simulation results show that the credit/GDP indicator using bilateral filtering methods as a counter-cyclical capital buffer-linked variable has a good explanatory power for the reality of China,which is useful for portraying the status quo of China's counter-cyclical capital buffer.(3)This paper indirectly verifies the practical effect of countercyclical capital by verifying the effectiveness of countercyclical capital regulation.Due to the inaccessibility of the data,it is difficult for us to directly observe whether the banks accumulate the countercyclical capital buffer according to the prescribed mechanism.However,due to the existence of regulatory pressures,banks' capital has the momentum to move toward regulatory standards.Therefore,this paper approximates the effectiveness of countercyclical capital by verifying the effectiveness of supervision.Using the differences in regulatory methods and regulatory standards between "Commercial Capital Management Measures(Trial)" and the MPA system,this paper sets different regulatory pressure variables to examine the effectiveness of countercyclical capital and enriches the empirical literature in this direction.The policy recommendations of this paper are as follows:Firstly,China should futher improve then counter-cyclical capital buffer mechanism suitable for its own characteristics.Regulators are strongly suggested to establish a forward-looking counter-cyclical capital buffer regulation framework.Secondly,different types of banks should be treated differently in capital supervision policies.When implementing counter-cyclical supervision mode,the regulatory authorities should also fully consider the characteristics of different banks,to apply differentiated regulation measures for banks with differences in properties,scale and risk management level,so as to optimize the allocation of regulatory resources and improve the efficiency of supervision.Regulators should be able to discover the causes of risks at root level and eliminate systematic risk in the cradle.Finally,regulators should make wise decision at appropriate moments.The counter-cyclical capital buffer should be implemented as a regulatory rule.It will avoid the interference of subjective judgment and improves the scientific nature of the policy that formulate the countercyclical capital buffer policy as a regulatory rule.Regulators should strengthen the coordinated use of various policy tools,and improve the incentive compatibility of counter-cyclical capital regulation by coordinating the use of various policy tools.