Research On The Relationship Between Chinese Commercial Bank's Capital And The Risked Assets

The relationship between Commercial bank capital and risk is one of the focuses of scholars both at home and abroad. This thesis attempts to research the relationship between commercial bank capital and risk-based assets for China.The main targets of the thesis are as follow. First, to explore the theoretical basis of the relationship between capital, assets and portfolio risk, so we can get theoretical support from the results in domestic and international. Second, it analyzes the actual situation of our country commercial bank's capital and risk-based assets management and the main problems in the management. Third, it empirical analyzes the relationship between commercial bank capital and risk-based assets, taking the Industrial and Commercial Bank of China for example. Fourth, based on the forthcoming Basel III and combined with the actual problems in the management of the capital and risk-based asset in Chinese commercial bank, the study try to give some suggestions to improve the management system.The paper adopts the simultaneous equations model developed by Shrieves and Dahl (1992), and extended by Jacques and Nigro (1997). This paper changes the risk structure equation, in order to analyze the relationship between capital adequacy ratio and credit assets, and the relationship between capital adequacy ratio and the securities investment. This paper uses a three-stage least squares (3SLS) model to analyze the relationship.There obtains four results in this paper.First, by analyzing the present situation of capital of our country commercial Banks, it says that there exist some problems in the capital management. The capital size of commercial Banks in China is still relatively low, compared with the European Union's and American. Furthermore, Chinese commercial bank capital structure is not reasonable, as the core capital ratio is so high that it is above 70% in the total capital.Second, the status of the risk assets of commercial Banks in China shows that the growing of total assets is too fast, and the proportion of credit assets is higher than other countries. It will increase the burden on Chinese commercial banks. Finally, through empirical analysis, the result indicates that the capital adequacy ratio has no significant impact on credit asset, and has negative impact on the securities and investment. While the credit assets has negative impact on capital adequacy ratio, and the influence of securities and investment to capital adequacy ratio is not significant.According to the results of the study, it suggests that our commercial banks should control the size of credit assets. At the same time, the banks should increase the kind of its assets so that it can reduce the portfolio risk. On the other hand, the commercial banks should make full use of affiliated capital added channels and raise the proportion of affiliated capital in capital.