Study On The Relationship Of Bank Capital Buffers, Lending Growth And Economic Cycle

Commercial banks are the financial institutions which can reflect thecharacteristics of banks. They play important roles in daily life; they are not only thehub of the entire national economy, but also affect the entire money supply, furthermorehave an significant impact on the implementation of national macroeconomic policies.In2008, A worldwide financial crisis evolved from the U.S. subprime mortgage crisishad spread rapidly in the major countries, east an west, and destroyed their financialsystem, meanwhile, the banking system had inevitably been damaged. This financialcrisis to get people to refocus the relationship of the banking system and the economiccycle. As is well known, commercial banks is pro-cyclical, because of its internalmechanism. Generally speaking, in the recession, due to the high loan default risk,decreased value of guaranties, commercial banks tend to reduce lending to control risk.At the same time, reducing the lending will affect a wide range of low-risk projects, sothat these projects can not get loans. Further suppress the economics growth. On theother side, during the economic boom, the rate of loan default decreases, and value ofthe guaranties increases, in that case, banks expect economy optimistically for the future,so commercial banks increase loans. To stimulate economic prosperity.In addition, the Basel II rules increase the pro-cyclical nature of banks’ lendingbehavior. After the financial crisis, people realize the disadvantages of capital regulationand risk control, and question its effectiveness. In the summit of G20, Heads of states ofG20agreed on the reform measures proposed by the Basel Committee, which showedthat Basel Ⅲ was formally established. Basel Ⅲ proposes to use counter-cyclical capital,which aims at improving the resilience of the banking sector in the period of economicrecession, weakening the impact brought by the pro-cyclical. As a member of the G20,we have the responsibility and obligation to practice the new Basel Capital Accord. It isvery important for the stability financial sector to explore our regulatory policies inChina’s national condition under the guidance of the Basel regulatory policies.We use an unbalanced panel data of14Chinese commercial banks from2002to2013to estimate an equation for capital buffers and for economic growth and for thesource of capital buffers. and we evaluate the effects of bank capital on bank lendingactivity. Our results reveal that the capital buffers is counter-cyclical, and ourcounter-cyclical capital buffers really enhance the effect of lending behavior with the guidance of currency polices.