The Relationship Between The Capital Structure And Subordinated Bonds Of Domestic Commercial Bank

This paper examines the capital structure of the commercial banks of China and the subordinated bonds Issued by these banks under the background of current macroeconomic situation of China. After the subprime mortgage crisis, credit spreads have widened by domestic commercial banks. In this case, the capital adequacy ratios of the commercial banks of China have been fallen. Issuing subordinated bonds to supplement regulatory capital is a good way to raise the capital adequacy ratios of these banks, but it will also affects the capital structure of these banks. This paper will introduce the relationship of the capital structure of commercial banks and the Issuing of subordinated bonds. The main contents are as follows:Chapter one is an introduction to the background of this paper, practical significance, the article review, research approach contents arrangement and some new ideas in paper.Chapter two is a survey of theoretical study on the capital structure of the commercial bank. M&M theory has been introduced and then it dwelled on the trade-off theory. On that basis, the paper gives a minute description of the capital structure theory of commercial bank.Chapter three compares the capital structures of domestic commercial banks and foreign commercial banks, including the differences of financial leverage, retained earnings, capital adequacy ratio and so on. Firstly, the financial leverages of domestic commercial banks are greater than that of foreign commercial banks. Secondly, there are less long-term liabilities in the liabilities of domestic commercial banks. Thirdly, compared with foreign commercial banks, domestic commercial banks have lower retained earnings. Finally, domestic commercial banks'capital adequacy ratios are also lower than the foreign ones'.Chapter four analyzes some problems consist in the issuing of subordinated bonds in our country. We find that the purposes of domestic commercial banks to issue subordinated bonds are always improving the capital adequacy ratios, even their financial leverages are very high. Long-term subordinated bonds as a Long-term liability can improve the liabilities structure of domestic commercial banks, but it can also make the financial leverage higher.Chapter five gives a positive analysis of the capital structure of domestic commercial banks and the subordinated bonds. It finds that the quantity of subordinated bonds Issued by domestic commercial banks per unit assets decrease when financial leverages increase. That may imply our country's commercial banks work in financial leverages which are higher than the best financial leverages. It shows that the quantity of subordinated bonds Issued by domestic commercial banks per unit assets decrease as the retained earnings ratio increase. Then it draws a conclusion that big banks will not issue subordinated bonds so much.Chapter six gives some advices, such as domestic commercial banks should pay attention to their financial leverages when they Issue subordinated bonds; domestic commercial banks should give more intermediary services to increase their retained earnings; the supervisory board should reinforce management of financial leverage when they use the capital adequacy ratio to supervise domestic commercial banks.