China's Commercial Bank Capital Regulation Requirements Analysis Of The Effect

The global financial crisis occurred in2008has revealed the weaknesses of the previous financial regulation system. The previous regulation put too much emphasis on the risk control of the individual bank, but overlooked the systematic risk in the financial market. Along with the development of the financial market, financial innovation product like asset securitization has emerged actively, which increase the systematic risk of financial market. After the crisis, each country has been taking step to carry out the financial regulation reform. On December2010, BCBS has announced the Basel III, which is one of the most representative financial regulation reforms, and will definitely guide the new regulation standards.Basel Ⅲ is based on the previous Basel Accord. It has strengthened the macro-prudential regulation, reclassified the capital more strictly, and put forward the higher capital adequacy requirements. In order to manage the systematic risk and pro-cyclicality of the regulation, it requires the capital buffer and counter-cyclical buffer. Additionally, it introduces the new liquidity ratios and leverage ratio to supplement capital ratio in controlling the bank risk.By analysis of bank capital regulation theory, from the Basel Ⅰ to Basel Ⅲ, this paper has researched on the latest Basel Ⅲ and compared it with the current capital regulation situation in China. Through empirical analysis, the paper points out the influences that the new capital adequacy ratio requirement might bring about.Through the establishment of simultaneous equations model, the paper uses forty-six panel data of China’s commercial bank and examine the relationship between changes in capital level and changes in risk level. The results indicate that changes in the risk level have significantly influenced changes in assets level in China’s commercial banks, while adjusting the capital level might not have any influence on risk level of the banks. The implementation of the new capital adequacy requirement brought by Basel Ⅲ will push those banks which are relatively undercapitalized to raise their capital level to meet the minimum requirement, but will not affect their risk level. Therefore, the Basel Ⅲ new standard does not reach the expected result and cannot effectively decrease the risk level of the banks in China.