The Pro-cyclicality Of China’s Commercial Banks

Impacts of the subprime mortgage crisis have been gradually fading away, while discussions on strengthening the supervision of commercial banks are still going on. Commercial banks play a central role in the development of national economy thanks to their importance. In the crisis, the products of subprime mortgage have been blamed heavily as the major villain, and financial institutions including banks have been pushed to the cusp for issuing all these troubling financial products. Scholars generally considered that commercial banks’ pro-cyclicality had aggravated the subprime crisis and accelerated its spreading globally. Commercial banks’pro-cyclicality is the key topic of this paper, and the author tries to find a good solution to bring down the degree of the pro-cyclicality.The background of choosing this topic is that the China Banking Regulatory Commission (CBRC) has been implementing the new Basel Capital Accord (Basel II) since the end of 2010, and by the year of 2013, all of Chinese commercial banks should meet the terms of Basel II. It’s imperative to implement Basel II, though the dispute on it is becoming more and more drastic at present. As a regulatory outline for global financial industry, Basel Capital Accord had notable effect in stabilizing the financial markets and financial institutions in history, but its flaws caused by pro-cyclicality are incurring more and more criticism and cannot be overlooked. This paper is dedicated to analyze the root of pro-cyclicality and then propose suggestions of amendments.This paper includes five parts. The first part is an introduction involving the meaning of this thesis, current situation of research on this topic, and research methods and innovation of this paper. The second one describes the origin of the concept of pro-cyclicality and major factors. In the third part, Basel regulatory capital requirements and regulatory status of China banking capital are reviewed. The fourth part is to pay attention to the analysis on the pro-cyclicality of capital regulation of commercial banks in our country. The fifth part gives policy recommendations and conclusions.Research methods used in this paper are as follows, theoretical analysis combined with case studies, theoretical analysis combined with empirical analysis, as well as comparative analysis.