An Analysis On Basel Ⅲ Liquidity Supervision Rules And Its Influence To The Profitability Of The Systemically Important Banks In China

The financial crisis happened in2008make serious impact to the global economy. Many banks went bankruptcy in this crisis whose capital adequacy ratio is quailed. And the way of watching on the capital adequacy ratio of banks didn’t work as excepted. The fact reflected that the old system of bank supervision can’t work effectively in face of the new economic environment, as for this these reasons, the Basel Committee couple with the regulatory authorities of main countries reformed the existing international financial regulatory rules in order to enhance the supervision of banks and maintain the stability financial system-Basel Committee promulgated a third edition in2010called Basel Accord Ⅲ, the new agreement strengthens the definition of capital, improved requirement of the systemically important banks to absorb losses, expanded coverage of risk, presented two new liquidity regulatory ratios. That two ratios is Net Stable Funding Ratio, hereinafter referred as NSFR, and the Liquidity Coverage ratio, hereinafter referred as LCR, this new regulatory system could be more effective to prevent system risk. Three years have passed, many countries actively practiced Basel Ⅲ regulatory framework thus a lot of experiments and observations have been carried out. With these actions, in2013, the Basel Committee made a lot of reforms to the last version, including the calculation rules liquidity regulatory ratio. China has always been an active implementer of the Basel regulatory framework, the Chinese Banking Regulatory Commission issued a series of document to carry out liquidity regulatory framework in2011and2013, which will give a significant impact on China’s banks.This paper studied the two ratios NSFR and LCR, first introduced the important concept in this article including systemically important financial institutions, liquidity risk, and then discuss the new liquidity regulatory framework, and in accordance with the changes in the new regulatory rules and formulas, after this the paper analyze the impact of liquidity regulatory ratios on profitability of the banking sector and real sector, plus other effects. In addition to the theoretical aspects, I select11systemically important banks of China as this article’s sample according to the latest document issued in January2014by CBRC. And based on the annual report of the11banks, the paper estimated NSFR and leverage ratio in the period from2001to2013,and made a analysis on the data.The11banks are the systemically important banks of China, the profitability of these banks will be affected, further more the response of these banks will make huge and far-reaching impact on the real economy. Therefore, this paper’s analysis on the influence of new regulation rules will be divided into two angle. First, the direct influence of the behavior that banks would make in order to meet regulatory requirements. Second, the paper studied the long-term influence on the profitability of banks. In the second angle, the paper derive a theoretical model in which the return of equity is the dependent variable meanwhile NSFR, leverage ratio, the proportion of out balance sheet assets, interest rate and other indicators are explanatory variables. Then the paper use the multiple linear regression analyzed the panel data of the11banks to study the influence of the regulatory constraints to the bank’s profitability. The empirical results show that NSFR and leverage ratio have a negative influence on the bank’s profitability, as well as the proportion of out balance sheet assets and interest rates have a positive impact. No doubt that the effect of the interest rate is more significant. So we can conclude that after the formal implementation of the new regulations the bank’s profitability will be affected. The banks will raise the interest rate of loans in order to maintain their income after PBC let the interest rates been determined by market. Even more banks will expanding the scale of out balance sheet assets and so on. All of these actions will make potential impact on the banks themselves and the corporate entities rely on loans. In this last, the paper gave some recommendations both from the perspective of inspiration to regulatory and banks’ countermeasures.