Applicability Analysis Of CAR Under The Chinese Version Of The Basel In China’s Commercial Banks

"Basel I" which originated from Basel Committee which was created in1974. Its original intention is to summarize the lessons of bank failures, constructing a global banking supervision system. Then, European and American financial institutions rapidly developed and innovation of financial products appeared. In order to adapt to this development, the Basel Committee commenced to amend the agreement from1998. in2004,based on the shortage of "Basel Ⅰ", the Basel Committee promulgated a new "Basel Ⅱ". However, the global financial crisis in2008disrupted the pace of the global implementation of the "Basel Ⅱ". In2009,the Basel Committee to re-examine the regulatory vulnerability exposed by the crisis. In2010,"Basel Ⅲ" was born in all kinds of controversy. With "Basel Ⅲ" issued, combined with banking reform and development in China, the China Banking Regulatory Commission launched four regulatory tools in February,2011, to develop a new regulatory framework of the banking sector in line with China’s national conditions. This was known as "Chinese version of Basel Ⅲ". On May3,2011, the China Banking Regulatory Commission issued "guidance of the implementation of the new regulatory standards on China’s banking sector". On the basis of a comprehensive assessment of the validity of the current prudential supervision system. Capital adequacy ratio, leverage ratio, loan loss reserves, liquidity and risk standard regulatory requirements were made. It has been implemented on January1,2012.From the time "Basel Ⅲ" was first mooted to its formal introduction, the controversy has continued. One controversy is whether the new agreement will affect the recovery of the economy. The banking industry thinks that too stringent capital requirements in the new standards are will result in a reduction of bank loans, thus delaying economic recovery. Regulatory authorities think that after capital adequacy ratio improve; the bank may find other ways to supplement capital. Combined with other factors, in the long run, the increase of capital adequacy ratio will not delay the economic recovery. Another controversy is what roles is the new agreement in the prevention of crisis from happening again?"Basel Ⅲ" was introduced mainly based on a consensus of the Western countries--the world considers the low capital adequacy ratio of financial institutions led to the financial crisis. Strict capital adequacy ratio requirements can inhibit excessive speculation in financial institutions, enhance public confidence, and avoid the occurrence of a run. However the key is when a bank has problems, even every strict capital adequacy ratio may not be able to get the trust of the public. The facts show that some banks during the financial crisis which has high capital adequacy ratio may no longer be trusted by market. Another problem is that Basel Ⅲ does not regulate non-bank financial institutions, such as investment banks, hedge funds, money market funds and bond insurance companies. These institutions have a large number of securities and complex financial instruments by lever-operation. If they lack supervision, they still could become the fuse for a new round of crisis. In addition, the objectivity and impartiality of the external rating agencies which is relative with asset risk coefficient is determined has also been questioned.In China, the Chinese version of the Basel agreement is also subject to dispute. Due to the survival environment differences between the West Bank and China bank, some people think that the new agreement will indeed enhance the risk-bearing capacity, but it may also bring about a reduction in bank profits. Because Chinese banking industry is still relying on loan-to-deposit difference of credit business to make profits, some people suggested that China’s banking sector is taking a separate operation. During the transformation of business scope, the space of intermediary business in Chinese banking is less broad than Western countries. Many non-credit business which Western banks make contributions to the large profits, such as underwriting of securities, investment banking business, the brokerage business and asset management business is difficult to intefrvene for Chinese banking, which greatly reduces the ability of financing of the Chinese banking.Therefore, the article seeks to explore the applicability of capital adequacy ratio with theoretical and empirical analysis. The article analyzes the relationship between indicators of bank profitability, risk behavior, and the capital adequacy ratio, respectively, from the point of view of profitability and security, a combination of qualitative analysis and quantitative analysis.This article was divided into seven parts, the structure is as follows:The first part is an introduction about background, meaning, the structure of article and research methods, summarizing the results of previous studies. The innovation and inadequacies of this paper are presented in the end;The second part is the introduction of Basel agreement—the content of Basel Ⅰ, Ⅱ, Ⅲ and shortcomings, and then introduce "guidance of the implementation of the new regulatory standards on China’s banking sector", namely the "Chinese version of the Basel about the situation;The third, fourth, fifth part is analysis of the applicability of capital adequacy ratio regulation of the commercial banks under the Chinese version of the Basel in China. These three parts is the main content of the full text:The third part describes the theoretical basis of the capital adequacy ratio regulation, and set forth the necessity and importance of the capital adequacy ratio of regulatory indicators from the perspective of capital management and risk management. And then, the paper gives the theoretical analysis of the applicability of CAR requirement regulation of the Chinese banking under the Chinese version of the Basel in China. In theory, the capital adequacy ratio regulation has a positive effect on absorbing bank losses, enhancing market confidence and resolving the principal-agent problem. But simultaneously too strict regulatory requirements of capital adequacy ratio will increase the operating costs of the commercial banks, and commercial banks face greater replenishment pressure which may in turn affect the overall economic development. The theoretical analysis is detailed from both positive and negative position;From a profitability perspective, the fourth part goes on empirical analysis of applicability of CAR regulation requirement of banking sector in China under the Chinese version of Basel Ⅲ, having function fitting with SPSS software. By fitting the relationship between the capital adequacy ratio and return on capital, total loans, the article goes on the applicability analysis. From the point of view of the profitability, the Chinese version of the Basel Ⅲ has some applicability in Chinese commercial banks.The fifth part is empirical analysis of the applicability of capital adequacy ratio regulation of the commercial banks under the Chinese version of the Basel in China from a security perspective. The model is the capital and risk adjustment model used by Shrieves and Dahl. The article draws a correlation coefficient of each variable for analysis by Eviews software regression analysis. Combined with the actual situation in China, capital adequacy ratio regulation requirements under Chinese version of Basel Ⅲ did not play much role in the safety the bank, worth pondering.The sixth part proposed the corresponding countermeasures and suggestions, combined with theoretical and empirical analysis. The suggestions are described from widening capital of supplementary channels, optimizing the structure of risk assets and adjustment of mode of economic development in the long run.The seventh part is the summary.This article takes the following research method:(1)The literature method. By carefully reading Basel Ⅰ, Ⅱ, Ⅲ and articles about the capital adequacy ratio of Basel agreement, and then organize your thoughts and innovative research.(2)The combination method of theoretical and empirical analysis. In this paper, based on a detailed understanding of the Basel agreement Ⅰ, Ⅱ, Ⅲ, the article takes a combination of theoretical and empirical analysis.(3)Chart method. The article also cites some forms with intuitive description, and uses tables to compare more data, making analysis clearer. The innovation of this paper is that (1) in research ideas, the study of the suitability of the capital adequacy ratio is combined with bank-run "three principles", and the results and banking business have a better combination, having practical significance;(2) The research of the relationship between CAR regulation and profitability fully consider the more stringent requirements issued by the CBRC. The reasonable range of values is in strict accordance with the requirements of the regulatory authorities in China on the CAR of commercial banks, making the analysis more credible;(3) The study of the relationship between regulation and security of the capital adequacy ratio makes some adjustments about the selection of variables combined with China’s reality during the settings and analysis of the model, on basis of the model which was proposed by Shrieves and Dahl in1992with further improvement and development of national researchers. The empirical model has more applicability and study results also have more practical significance.The inadequacies of this article are that:(1) because there are some difficulties about data collection, during the empirical analysis process, the selected sample size is not large enough, which might affect the accuracy of the results.(2) During the empirical analysis process, due to the limited space, the selection of indicators for profitability and safety indicators may be too single, so analysis is not comprehensive enough.(3) Due to the limited capacity of individuals, part of the point of view is not enough depth and comprehensive in both theoretical analysis and policy recommendations.