Impact Of Capital Regulation On Commercial Bank Credit Behavior

Since the promulgation of the1988"Basel I", commercial bank capital regulatory system which is with the core of the Capital Adequacy Requirements(CAR) of been widely adopted around the world by the banking supervisory authority. In the past twenty years, with the increasing acceleration of financial innovation, the Basel Committee and Banking Supervisions of different countries have also revised and improved the supervision measures and conditions, on purpose of continuously improving the effectiveness of regulatory capital and reducing the risk of commercial banks. Prior to the crisis, banks of the major developed countries had maintained a high level of Capital Adequacy Ratio:U.S.12.8%(2007), the United Kingdom12.9%(2006), Germany12.2%(2006) and Japan’s12.9%(2007). However, the2008the global Financial Crisis is just resulting initially from the Subprime Mortgage Crisis in the U.S. banking industry, with that banks of America had already meet the CAR, even holding excess capital.Because huge bad debts of the subprime loans,a lot of subprime lending institutions went bankrupt, a large number of investment funds closed down and stock market fluctuated much,which lead to a spread of the global financial crisis. After the crisis, governments have adopted some "rescue" measures, the Basel Committee has also launched "Basel Ⅲ" as soon as possible. Although capital regulatory system is more mature, the major developed countries are still trapped in the credit crunch and economical recession until now. Although the Financial Crisis hardly impacted China’s banking system, we need to pay attention the exposed problem and take a "its essence, to its dregs" attitude to the supervisor measures of other countries. This article wants to study how CAR affect the commercial bank credit behavior and whether the supervisor purposes can be achieved under the background of increasingly mature banking regulatory system.This paper started from the theoretical study and review of CAR and lending behavior of commercial banks, then explored two questions:what is capital regulation and whether it is necessary to regulate the capital adequacy of commercial banks.Next, this paper combed the establishment and evolution of international and domestic bank capital regulatory system. Then we studied the mechanism of how regulatory capital impact the commercial banks" credit behavior, and respectively investigated the different effects of CAR on the capital adequacy banks and capital lack banks.Following, this paper summarized the capital adequacy ratio status of the our commercial banks and found that:the majority of our banks were capital adequacy, the capital adequacy ratio was even higher than the regulatory requirements. So how regulatory capital impacted the credit behavior of commercial banks? This paper used panel data2004-2011to take an empirical research from three angles: Credit Size, Credit Expansion and Credit concentration of commercial banks to examine effect of regulatory capital constraints on commercial banks’credit behavior.We find that our existing capital regulatory system had constraints effect:bank capital regulation can effectively control the Credit Size and would result in a certain degree of credit crunch; bank capital regulation would decrease the Credit Concentration, an increase of the diversity of its loan portfolio to reduce its risk exposure. The effect of CAR on banks differed with the scale of state-owned and joint-stock banks, the capital adequacy ratio of loan size impact is not significant, and for city commercial and agricultural businesses, capital regulation has a significant tightening effect. However, the existing capital regulatory system is not yet effective control credit expansion rate of commercial banks. This article is recommended to improve the regulatory authorities in the capital regulatory regime, we should also strengthen the supervision of bank governance, making commercial banks pay more attention to minimize risk, in order to maintain stable operation of the banking sector in the business.