A Study On The Channels Of Capital Supplement Of China's Commercial Banks

Since the issue of Basle Accord in 1988, Capital Adequacy Ratio (i.e. CAR) has become a widely accepted international standard in measuring moderation of both a single bank and the whole banking system. To meet with the tendency, the Chinese banking regulatory authority also strengthens its regulation on CAR of each bank. Therefore, in order to meet with the financial regulations and deal with the intensifying financial competition, Chinese commercial banks have to hold adequate capital. Meanwhile, due to the fast national economic growth, a domestic demand on bank credit funds also urges commercial banks to supplement with sufficient capital. However, the embarrassing truth in China is that CAR of the whole banking industry is relatively low and a lot of banks are unable to reach the minimum level of capital adequacy. Compared with those prominent international banks, the discrepancy is all the more profound and hence capital supplement is imperative to the growth of Chinese commercial banks.Whereas in view of commercial banks, the thesis begins with the requirements in bank capital structure and the corresponding ways of capital supplement, trying to analyze every capital composition and its possible capital supplement channels for China's commercial banks. For Tier One Capitals, this thesis stresses on two basic means of capital supplement—introduction of overseas strategic investors and initial public offerings of banks. After a systematic analysis, this paper also comes to the mutual problems they have: how to price per list banks' share and how to assure state-owned capital on a dominant position. Then, this thesis puts in detail a new form of Tier Two Capital, hybrid tier-two capital bond. The latter came into being in China only recently but lacks enough attention. So in the paper, articles demonstration of this bond is analyzed. Enlightened by it, the author discusses the feasibilities of designing a new kind of capital instrument—innovative tier one capital, which was seldom.To close, the author puts forward his suggestion on how to select in the different channels of capital supplement and makes clear that capital supplement is employed only a way to improve core competencies of China's commercial banks, which in turn lies the essence of supplement.