The Analysis Of Commercial Bank Capital Quality Based On Regulatory Capital Arbitrage

Regulatory capital arbitrage refers to the behavior that the bank bypassing the capitalregulation “whitewashes” its capital strength, by asset securitization and financial innovation. Itsmotivation comes from the bank capital saving tax--the difference of economic capital andregulatory capital requirement. Regulatory capital arbitrage arises from the defect of capitalregulatory framework in the Basel agreement. As an unexpected result of the Basel agreement, itdevelops very quickly in the western developed countries. Regulatory capital arbitrage reducesthe effectiveness of capital supervision, exacerbates the banking systemic risk, and spawns anumber of asset securitization products, becomes the important reason of American subprimemortgage crisis.In contrast to our financial industry, especially the banking of our country, it is worthy of ourreflection. If you reject the innovation of financial products in order to prevent any regulatorycapital arbitrage, it will not only harmful to China’s integration into the global financialintegration, but is not conducive to the development of financial industry in our country.Therefore, in the present stage all that we can do is to strengthen the financial supervision,especially on the banking capital regulation, gradually making the regulation more fully reflectbank risks, instead of increasing the rate of capital adequacy blindly. Therefore, we should fullyconsider the potential benefits and risks. And we should take different measures in different stages,obtain the benefits of regulatory capital arbitrage, and as the same time prevent the possibledanger.