Counter-Cyclical Capital Buffer Supervision Under The Framework Of Macro-Prudential

Strengthening the macro-prudential supervision with the combination ofmicro-prudential supervision gradually becomes the major trends of the currentnational financial regulation. The paper argues that the implementation ofmacro-prudential supervision is an important task to pro-cyclicality of financialinstitutions, especially the capital regulation, the loan loss reserve provision and fairvalue accounting standards and other external rules which strengthen the financialsystem at this stage. On the one hand these rules need to be revised and improved, andwe should reduce their procyclical effects; On the other hand, the introduction ofcounter-cyclical capital buffer policy instruments in the financial system, and theestablishment of appropriate counter-cyclical mechanism, thus by reducing the creditactivities, assets the cyclical fluctuations of prices and the economy as a whole toreduce financial imbalances, mitigate systemic risk, and ultimately achieve the goal ofmaintaining financial stability.The paper will focus on counter-cyclical mechanisms and counter-cyclicalcapital buffer policy tools under the framework of the macro-prudential supervision.The causes to strengthen the financial system include both financial institutionsinternal factors and external rules factors. The internal factors include the riskmeasurement methods and models with a short time span of incentives to encouragethe pursuit of the shortage of interests and financial institutions exposed to aspects ofconvergence in the development strategy. First, the paper analyzes the basic theory ofmacro-prudential supervision, macro-prudential supervision, the supervision of thefinancial regulatory bodies on the health of the financial industry as a whole, ratherthan just monitoring one aspect, mainly to identify the various risks of financialinstitutions, and analysis of these risks through a series of macro-prudential policytools to detect and eliminate these risks.Counter-cyclical capital buffer principle is to avoid or weaken the positive relationship between financial institutions and the business cycle fluctuations, themain macroeconomic overheating, in order to avoid overheating of the economy toabsorb part of the financial capital, in order to cool down to the real economy, and inthe economic Depression, in order to promote macroeconomic recovery, release largeamounts of financial capital to support the development of the real economy, topromote the development of the real economy and to avoid further economic decline.In the empirical study, based on counter-cyclical capital buffer mechanism, thebalance of bank credit to GDP ratio (credit balance/GDP), to determine thecalculated results, compared to the value of the trend of this indicator a period of timeaway from the poor extent, according to this indicator to determine the necessity ofthe provision of counter-cyclical capital buffers and the number of counter-cyclicalcapital buffer. Finally, our implementation of specific measures of macro-prudentialsupervision, one method to select two specific indicators of capital adequacy rate,macro-economic prosperity, to specify a relatively high capital adequacy ratioindicators to curb economic overheating, and in the economic recession downturnspecify a relatively low capital adequacy ratio indicators, to avoid the externaleconomy further into recession. Method2, an integrated function of the design model,indicators of financial capital adequacy ratio, GDP growth indicators, financialinstitutions, credit and financial institutions revenue indicators taking into account themodel, adjust the amount of capital, depending on the state of the externalmacro-economic development to overcome the financial institutions along cyclicaleffect. Method three methods refer to the above-mentioned second method ofmacroeconomic developments in the more prosperous, recapitalization of financialinstitutions, and when the economy not the economy in recession, it should be topromote financial institutions to release the financial capital to support the realeconomy developments.