Commercial Bank Capital Regulation And Bank Risk-Taking Behavior

Banking, which is an industry of managing risk since its beginning day, is strongly associated to crisis. Banking crises are often accompanied by the financial crisis, even becomes the international financial and economic crisis on the national economy. Given the position of the banking sector in the national economy, all countries of the banking sector implemented a strict supervision. Banking supervision is the essence of the regulation of banking risk-taking behavior, as a globally recognized system of banking supervision, the core of Basel regulatory agreement is constrained the bank’s risk-taking behavior by supervising the capital adequacy ratio of the banking and thus, in order to avoid bank failures caused by a wide range of crises. The global financial crisis, caused by the U.S. subprime mortgage crisis at the beginning of2007, triggered great damage:Bear Stearns, Lehman Brothers declared bankruptcy, Merrill Lynch was acquired, Goldman Sachs and Morgan Stanley to change the nature of registration as a bank holding company. The crisis fully illustrated the complexity of regulatory capital and current regulatory regime cannot constraints the banking sector risk taking behavior. For the problems exposed by the crisis, the Basel Committee introduced the Basel â…¢ in which one important aspect is to improve the bank’s regulatory capital requirements. For domestic and international economic environment changes, Chinese regulatory authorities launched a new banking regulatory standards based on Basel â…¢ and provides for the transition period. It can be said that China’s capital regulation will enter a new era, whether China’s banking capital regulation on the risk taking behavior constraint take into action or not and the different impact to different nature of banks, are the question which urgently needed to answer.This paper mainly studies the impact of regulatory capital on Chinese commercial bank risk-taking behavior. The article research follow this line of thought:From the practical point of home and abroad, capital regulatory regime has become the core of regime constraining bank exposures. The research beginning with the explanation of this phenomenon, which is also the foothold of this study. Next, the article studies the capital regulation institutional arrangements and practices of China’s regulatory capital, which provide institutional support from to the theoretical and empirical research. Since capital regulation has become the basis for bank exposures, the next article starting to study capital regulation and bank risk-taking behavior relationships and capital regulation on bank risk-taking behavior of short-term, long-term effects base on the theoretical derivation. Theoretical analysis by constructing multi-period model, examine the most optimal risk-taking behavior of banking on the condition of non-capital regulation, study the long-term and short-term impact of capital regulation to risk-taking behavior on banks based on the introduction of variables to represent the regulatory capital punishment. Eventually, we can conclude that the effect of capital regulation on banks long-term and short-term risk-taking behavior depends on the effectiveness of regulatory authority’s punishment. Then the article defy the variable of regulatory pressure from regulatory authorities, proposes three hypothesis of different impact the capital regulation on banks’ risk-taking behavior based on the bank owners, bank managers and the regulatory authorities’different attitudes toward risk. In order to verify the hypothesis, the article construct simultaneous equations models based on bank capital and risk simultaneous adjusting equations, and select data for the year2000-2012China’s banking as the sample data. The logic through theoretical and empirical is:capital punishmentâ†'effective regulatoryâ†'generate regulatory pressureâ†'the Game between regulators, owners and managers’â†'the adjust on bank’s risk assetâ†'affect banks’ risk-taking behavior.After empirical study, this conclusion is as follows:capital regulation have a significant impact on the risk-taking which represented by non-performing loan rate; regardless of what banks are under regulatory pressure tend to reduce non-performing loan ratio; Capital regulation have a significant impact on the risk-taking which represented by RCW, but the impacts on different bank are difference. Joint-stock commercial banks and city commercial banks tend to assume more risk. At the end of article compare to state-owned commercial banks. At the end of article, the paper put forward policy recommendations to the regulatory authorities and commercial banks.