Research On The Capital Constraints And Capital Supplement Of China’s Commercial Banks

Basel Ⅲ strengthens the global banking capital regulation. Based on the three pillars of the New Basel Capital Accord, absorbing the latest achievements of the Basel Ⅲ,CBRC raises a more stringent new banking capital regulation framework.The credit of China’s commercial banks have increased sharply since the current round of financial crisis. According to the China Audit data the local government debt was about10.7trillion yuan in the end of2010. Some parts of this local government debt will directly reduce banks’ capital.Under potential losses, sound economic policies and stringent regulatory requirements,China’s commercial banks are facing severe capital constraints. Soundness of the banking system is the premise of the financial stability, a modest supply of loans is the premise of economic growth,and sufficient capital is the basis for expansion of asset size and bank safety.Compression of risk assets and replenish capital can both improve bank’s capital adequacy ratio in theory. But combined with China’s actual situation, replenish capital is a more important way to solve banks’ capital constraints. So capital constraint and capital supplement are two sides of a coin, capital constraint requires banks for capital replenishment, at the same time the purpose of capital supplement is to resolve risks. Capital replenishment is a financing decision, bank capital replenishment decisions need to consider the impact of the capital structure and capital quality, also have to meet the requirements of the bank capital regulation.This paper takes China’s16listed banks as the research object, draws on the idea of Basel Ⅲ, divides these16listed banks into D-SIFIs and ND-SIFIs. Firstly the paper reviews Basel Ⅲ and new banking capital regulation framework. Secondly the paper study China’s commercial banks’ capital constraints, the potential bank capital constraints from monetary policy and regulatory policies, banks’ capital supplement channels. Then the paper makes a comparative study of D-SIFIs and ND-SIFIs on capital adequacy, regulatory capital structure, internal financing capacity and external financing capacity. The last part of the article is conclusions and implications.This paper is divided into five chapter, the main contents are as follows:Chapter Ⅰis to introduces the research background, research significance, the basic ideas and logical structure, and sort out related literature. Chapter Ⅱ is to analyze the regulatory philosophy and the main contents of the Basel Ⅲ, and to present new framework for banking capital regulation in China. Chapter Ⅲ is to study the capital constraint effect from monetary policy and regulatory policy, and find out that capital adequacy, capital structure, internal financing capacity and external financing capacity can affect capital constraints. Chapter Ⅳ makes a comparative study of D-SIFIs and ND-SIFIs on capital adequacy from the above-mentioned four factors based on detailed and accurate data. Chapter Ⅴ is to summarizes the conclusions of the paper.The main conclusions of this paper are as follows:Firstly, the SGGA of D-SIFIs and ND-SIFIs are7.24%and11.49%, the capital constraints of D-SIFIs is still relatively lighter than ND-SIFIs. Secondly, China’s commercial banks are facing a higher core capital regulatory standards for lacking of other tier one capital. So the return on net assets and internal financing capacity of the bank are both lower than the ideal value. Basel Ⅲ has also weakened the internal financing capacity of banks. Thirdly, the subordinated bonds is the most important supplementary capital instruments of China’s commercial banks. Fourthly, The China Banking Regulatory rules can set up dynamic regulatory standards to increase the issuance of hybrid capital bonds.