The Impact Of Capital Adequacy Ratio On Monetary Policy Transmission In China

Along with the capital adequacy ratio of China’s commercial banks into the substantiveregulatory stage, commercial banks have to adjust its risk appetite, portfolio structure and creditdecisions, making the situation of the banking system and credit supply changed in order tocontinue to meet minimum capital adequacy ratio at the same time. As the main monetary policytransmission intermediaries–banks, whose behaviors modification are bound to alter thetraditional monetary policy transmission under the conditions of capital adequacy ratio, and thusthe ultimate effect of the monetary policy affected.Based on the assumption of bank heterogeneity, this paper normatively and empiricallyanalyzes the impact of capital adequacy ratio on the Chinese monetary policy transmission Theresults turn out: high capital ratio banks fail to smooth conduction of monetary policy; lowcapital ratio banks have negative effect on expansionary monetary policy to a certain extentwhile are succeed in smoothing tightening monetary policy;by analyzing high capital ratio banksand low capital ratio banks together, low capital ratio banks have greater impact on expansionarymonetary policy than high capital ration banks, thus the effect of expansionary monetary policytransmission is to some extent weakened, high capital ratio banks have greater impact ontightening monetary policy than low capital ration banks. Moreover,"Bank lending channel "canplay an effective role, and the" bank capital channel” is only effective within the low capital ratiobanks during tightening monetary policy period.