The Procyclicality Effect Research Of Chinese Commercial Banks' Capital Adequacy Rate

Procyclicality of supervision capital, simply speaking, is regulated by the relevant supervision authorities in capital requirement which will affect commercial banks'credit and portfolio, through credit activities to promote the formation and intensification of the economic cycle fluctuations in the economic cycle. In the period of macroeconomic depression, credit default will increase significantly, assets assessed by the risk will decrease in quality. The supervision capital will increase correspondingly, the banks'credit behavior will become cautious。On the contrary, in the period of economic prosperity, credit quality will be improved significantly, assets will be improved in quality, supervision capital will decrease correspondingly, credit will become optimistic relatively. Therefore, the banks'supervision capital will change as the economy changes.In fact, the Procyclicality of the supervision capital has been recognized for a long time. In the second year after Basel Capital Accord introduced, scholars in European and American had put forward supervision capital requirement changing with economic fluctuations. After that, the economic theory and practice started beneficial research separately in the method of theory and practice. In this paper, we will use and modify the original model established by Ayuso and saurian(2004)to study whether procyclicality of supervision capital requirements for commercial banks, regulated by the relevant supervision authorities, exist. We tried to have a new knowledge of capital adequacy ratio.Generally speaking, in this paper, we will make a comprehensive study of the theory firstly. Based on previous research, we will modify the original model, and follow strict empirical thought.From empirical research, we conclude following conclusions:1,On the whole, with the implementation of capital adequacy ratio, the level of Banks'buffer capital is significantly negatively correlated with economic fluctuations. As the economy improves, more credit balances held by banks, and banks hold more risky assets, more capital will be required to reduce banks'buffer capital; on the contrary, as the economy gradually declines, less buffer capital is held by banks, resulting in procyclicality in bank supervision capital. This conclusion is consistent with results in foreign literatures.2,the difference in the size of the total assets of banks as a basis for classification of the results can be found, whether big or little small banks, will be shown with its capital buffer fluctuations in the economy, but the effects of large banks than smaller banks, The main reason for this phenomenon may be caused by large banks credit broader than small banks to make credit, relatively higher amount of credit, and thus the amount of a bank's capital level than small banks more vulnerable to economic fluctuations.3,If the banks capital adequacy rate in the classification as a basis, We may discover the low capital adequacy ratio of banks has assessed the effect of fluctuations in the economy with the capital adequacy ratio for banks in effect, results are even more significant, there are two possible factors which caused this phenomenon, First, the capital adequacy ratio for banks with lower capital adequacy ratio of capital to reach close to the bank's capital adequacy ratio to regulate demand, but when the economy changes, in order to meet the capital adequacy ratio standards, low capital adequacy ratio for banks to put out the amount of supervision capital requirements will be far greater than the amount shown in a high capital adequacy ratio of banks must put the sword requirements governing the amount of capital, capital adequacy ratio and low capital cushion of capital banks are more vulnerable to economic fluctuations; Another reason for the difference in type of business managers, from the point of view of managers, types tend to be conservative in the banking business would be inclined to maintain a higher capital adequacy ratio and to reduce the probability of their occurrence of insolvency, however, the high capital adequacy ratio of banks with low capital adequacy ratio for banks relative to the more conservative business types. the higher capital adequacy ratio of banks, the effects of low capital adequacy ratio of banks than light.4,The mutual competition between banks, the overall level of capital held by banks competitors and changes in direct proportion to the level of capital movements. However the results did not reach significant levels. However, the size of assets, the competition among small banks act more notable than competition among banks, probably because the majority of our large banks with the formerly state-owned banks, joint-stock banks and small banks fall. China's central bank coupled with the original operating efficiency is not high. Compared to the competition among banks has made big small light competition between banks, the capital adequacy ratio, the high capital adequacy ratio of banks with low capital adequacy ratios than the competition among banks competition will become more obvious.5,In the implementation of China's capital adequacy ratio standards, Bank capital cushion the effect has been shown with the asymmetry in the economic fluctuations, and the stage of the economic recession in the same fluctuations in the economy has become even more obvious.6,As a whole, with fluctuations in the economy will have an impact on the bank's balance sheet changes in the two projects. A credit growth rate of the economy as a result of fluctuations in the bank's asset portfolio makes changes in the implementation of the Basel II capital adequacy ratio under the supervision of the agreement, the asset portfolio changes make the amount of capital banks must meet the degree of risk faced by the asset portfolio, to make the amount of capital banks buffer fluctuations in the level of economic impact, but also show the same fluctuations in the economy, however, Banks will also affect the bank's capital buffer, but the changes do not affect economic fluctuations.7,In a word, The study found that after the implementation of standardized capital adequacy ratio of China's banking sector's capital has indeed with the fluctuations in the economy. In particular, under certain conditions, the effects of their greater, such as the presence of large banks and banks with low capital adequacy ratio under the conditions. Therefore, the government in the implementation of related policies, in order to attain an effective supervisory measures, consideration should be given to these conditions, to strengthen the bank's risk supervision.Through this process from the empirical study we make out the following three research proposals.1,By the results of this study tells us that the capital adequacy ratio for the implementation of standardized, economic fluctuations in the amount of capital banks have a certain level of influence, from the bank's point of view, such changes will also affect the bank's lending activities, led by the bank's assets portfolio, the credit crunch will cause a serious situation, the government in the implementation of the capital adequacy ratio standards. The changes should consider the degree of economic volatility, particularly against big banks and the banks with low capital adequacy ratio. Supervision policies that apply different standards to prevent the financial system have a negative impact on economic activity. Economic fluctuations and different risks faced by banks. and small banks and banks with low capital adequacy ratio of the shock effect of fluctuations in the economy and, therefore, The government should consider such an effective banking supervision, to strengthen the bank's risk supervision.2,A bank angle of bank capital through the following three aspects of mitigation banking supervision with the economic cycle effect. First, the banks hold excess capital. As the article mentioned, banks often hold more than capital supervision standards over capital. The excess capital and the existence of banks can meet certain external shocks. Second, banks are full cycle (through the cycle, the TTC) credit rating, economic fluctuations on the credit rating of filters. Third, it is risk capital regulation adopted family of curves. Another idea is to use capital supervision in accordance with certain rules and the family of curves calculated risk capital requirement.3,The study showed the amount of bank equity capital with fluctuations in the economy, GDP growth rates mean economic fluctuations and the use of index and the rate of return on shareholder's equity. Bank lending to the banks holding more than the opportunity cost of capital and risk types, but for follow-up studies from other variables to explore whether the agent bank's own capital will show the same level of economic fluctuations phenomenon. Another study concluded that the implementation of the Basel agreement on the conditions of the results, with the implementation of the Basel Accord II in 2006, and the method of calculating capital adequacy rate of any major change, Researchers can combine this change in the follow-up study.