Research On Relationship Between Procyclical Behavior Of Bank Leverage And Macroeconomic Fluctuation

Nowadays, China’s economy is facing a complicate situation, and bank system, as an important influence channel for monetary policy to real economy, plays an even more crucial role. Therefore, how to prevent the accumulation of bank risk which may trigger a systemic risk is the hot debated issue. Bank leverage, as a reflection of bank balance sheet structure and also a new regulatory indicator in "Basel Ⅲ", with its procyclical behavior with bank assets, has become a bridge for the study of bank supervision and monetary policy. Hence, by studying the relationship between bank procyclical leverage and macroeconomic fluctuation, we can achieve some beneficial results in improving the “counter-cyclical” bank regulation system and strengthening the cooperation between monetary policy and macro prudential regulations.Hence, in this paper, we first discuss the existence of procyclical behavior for bank leverage and its influences effects. Using the banks panel data, we make a discussion on whether there is a procyclical behavior for bank leverage and then distinguishes the differences among different types of banks. Also, according to the differences between domestic and foreign banks in the main businesses, we analyze the influences of bank loans and deposits proportion to the bank procyclical leverage. Furthermore, after the estimation of endogenous relationship between bank leverage and liquidity, we make a further discussion on the interaction of bank leverage and liquidity, and the influence on bank leverage`s procyclical behavior. In these studies, we find, the Chinese bank leverage is procyclical, yet there are some differences in different banks` leverage procyclical, for the domestic own banks, the leverages are not procyclical, but for the shared-own and small/mid-banks, the leverages are obviously procyclical; the influences of bank loans and deposits proportions to bank leverage are asymmetric, indicating that when bank expands its balance sheet by raising its leverage, the major method is to increase the loans, meanwhile, the non-deposit proportion in the bank debt is also raised; there are mutually negative relationships between bank leverage and liquidity, knowing that bank leverage has the procyclical behavior, when bank leverage is high, it may also has a shortage of liquidity.Next, after studying the existence of procyclical behavior of bank leverage and the influences effects, we continue to discuss the relationship between bank procyclical leverage and macroeconomic fluctuation. By discussing the relations of bank leverage and economic growth, we analyze the relationship between the procyclical behavior of bank leverage and economic fluctuation. then based on the monetary policies` impacts, we explain the procyclical behavior of bank leverage in a macro way. Furthermore, we make a comparison on the impacts of bank leverage and monetary policy to different aspects of macroeconomic, and based on that, we discuss the best relations for the bank leverage`s cyclical behavior and its interactions with economic growth. In this studies, we find there are negative relationships between bank leverage and economic growth, and no positive feedback which is commonly believed to have, which result means the growth of bank leverage would not lead to a fast economic growth, and the speed up on economic growth has a negative influence on bank leverage growth. Considering the procyclical behavior of bank leverage, there is a mitigation effect for the procyclical behavior of bank leverage on macroeconomic fluctuation; By analyzing the impact of monetary policy to bank leverage, we conclude that the reason that the procyclical behavior of bank leverage decreases the economic fluctuation is due to concurrence of the simultaneously changes of bank assets and bank leverage, when the "counter-cyclical" monetary policy impacts on the real economy through bank credit channel; Moreover, there is a win-win result for both bank and economy, when bank leverage has a counter cyclical behavior and a positive relations with economic growth, which guarantee a steady growth for economy and also give development spaces for the banks.Finally, based on the conclusions, we make some policy suggestions on monetary policy and macro prudential regulations, especially for the ‘counter cyclical’ bank regulations.