Bank Capital And Bank Credit Based On The Agreement Of Basel â…¢

Because the agreement of Basel III will be implement, so the paper studies therelationship between the bank capital and the bank credit.First of all, the paper introducesthe capital regulation and liquidity supervision of the Basel Ⅲ agreement. Then, the modelbased on the Basel III agreement establishes with the capital adequacy ratio constraint, theliquidity constraints which includes of liquidity coverage rate and net stable fundsproportion, the variability of the risk weight and the credit risk. Based on this newframework, the paper not only analyzes the optimal lending and equilibrium of loaninterest rate in different capital constraint conditions, but also finds out the optimal bankcapital decisions and its influencing factors, At last, the paper special analyzes the mutualrelations of the bank capital and bank credit in different capital constraint cases.The conclusions on this Basel Ⅲ frameworkin this paper indicate that when capitalpine constraints, the introduction of credit risk and liquidity constraints to the supervisionis equivalent to the bank real added new business costs, which will lead the bank make itsoptimal credit supply reduce and the loan interest rate rise, while the direction of the creditamount and equilibrium loan interest rate changing with the macroeconomic fluctuation isnot sure. When the capital is binding constraint, the optimal bank credit quantity has anupper limit. The optimal loans change with macro economic fluctuation countercyclical,and change of the balanced interest rate with economic fluctuation change direction is notclear. From the model the paper finds that the bank is like to hold more capital than actualdemanded, whether in the face of greater loan volatility or stronger demand for loans toimpact, nor facing the expected external financing level rise or the loan marginal costdown, holding capital buffer can make the bank much more competitive when facing thesuddenly increase of the loans. On the other hand the influence of the macro economicfluctuation to the capital level is not sure, because it has other factors and a lot ofuncertainty, which involves the game between the liquidity constraints, credit risk andcountercyclical risk weights. Finally, liquidity constraint makes the capital level drop, andthe more severely the penalty of liquidity supervision is, the more hard the capital leveldeclines. Secondly, according to the Basel Ⅲ agreement,if adding the leverage capitalconstraint to the model, discussing the influence of bank credit, interest rates, capital levelwhen it face the leverage ratio constraint, it is concluded that when the capital is pineconstraint, the leverage ratio constraint on bank has no effect to the bank’s credit and rate;when the capital binding constraint, the leverage ratio regulation will further weaken thebank’s lending tendency; The higher the leverage ratio is,the more total capital the bankholds. The comparison study finds that leverage ratio has smooth periodic ability, andleverage ratio index does not influenced by economic cyclical fluctuation.In addition, the study also analysis the relationship of bank capital and bank credit,while the capital level changes the optimal level of the bank credit will also change:capital pine constraints, capital level has no effect to the bank credit and equilibriuminterest rate; Capital binding constraint, capital level rise will increase the bank credit andequilibrium interest rate and has obvious along the periodic; When the leverage ratioconstraint, the raise the level of capital will also increase the bank credit, the onlydifference to the capital adequacy ratio constraint is that it won’t produce the loan period.When the bank credit level changes, capital optimal level will also be changed: increasingthe same amount of loans, when capital is adequacy, there’s no effect on capital level;when capital is not enough, if capital adequacy ratio constraint priority to given, thecapital level is increased, and bank capital has the cycle; If the leverage ratio constraintpriority to given, it also needs to increase capital, but the capital increases without theperiodicity.