Study On Problems In Capital Management Of China’s Commercial Banks Under Basel Ⅲ

Commercial banks are enterprises dealing with currency credit business, because of the particularity of their operating objects and their highly-leveraged financial characteristics, risk control has always been the major premise for banks to maximize the financial benefits, while capital determines the maximum level of risk banks can withstand. The capital to withstand risk is not in the same breath with the capital defined in financial accounting. Accounting capital refers to capital reflected in financial statements based on accounting standards; regulatory capital is the capital standards provided by the banking regulators. The two are connected but different. Therefore, a reasonable calculation of accounting capital, accurate identification and measurement of risks and capital holdings to match the risks are the core contents of commercial banks’capital management.After the outbreak of global financial crisis caused by the U.S. subprime mortgage crisis in2008, the complexity of classification of financial instruments, procyclicality of impairment of financial assets, etc. caused the international community to study and revise the accounting standards, so that IASB and FASB successively promulgated related revisions of the international accounting standards, and issued standards of "IFRS9Financial Instruments" and the principle of limited amendments. After the outbreak of the financial crisis, for problems exposed in Basel II such as low capital quality, lack of risk supervision, etc., the Basel Committee issued the Basel III. In this opportunity, the CBRC revised the original capital management approach and promulgated the so-called China version of Basel III-"The Administrative Measures for the Capital of Commercial Banks (tentative)".In this context, China’s commercial banks are facing a more complex environment of financial management, such as the slowing real economic growth, imminent interest rate marketization, increased financial disintermediation and technical disintermediation, etc., which proposes new requirements for currently China’s commercial banks to implement the new capital accord and capital management. In addition, for China’s commercial banks how to recognize the impact of changes in domestic and international regulatory standards on their capital management and how to meet the new challenges of capital management have become a series of issues worthy of further study.This paper, using a research method of combining case study and normative research, on the one hand by means of summarization and conclusion in normative research combed Basel III and the corresponding capital management approach in China to reveal the plight of increased capital pressure facing China’s commercial banks, and on the other hand, through the analysis of the macroeconomic environment concluded the need for change in the traditional capital supplement and management mode of China’s commercial banks, and then from the perspectives of leverage ratio-based quality of capital adequacy ratio, capital structure, and endogenous and exogenous financing made in-depth analysis of cases of various listed banks, and finally put forward countermeasures and suggestions for China’s commercial bank in capital management.This paper is divided into five chapters. The first chapter describes the background and significance of the research, literature review, research methodology and logical framework, as well as contributions and limitations of this paper. The second chapter on the one hand finds out the differences between banking capital and accounting capital, and further taps the characteristics of banking capital, and thereby proposes the necessity of commercial banks’capital management under external regulatory constraints; and on the other hand through the analysis of the development process of Basel Accord finds out the new regulatory requirements in the new accord for the capital management of banks, i.e. improvement in the quantity and quality of capital and the introduction of leverage. Under this context, this paper made the following analysis and research. The third chapter through analysis from the perspective of financial environment finds that in the context of changes in international accounting tools and standards the traditional endogenous and exogenous financing mode China’s commercial banks relied on in the past has become unsustainable, thus increasing the pressure on capital replenishment, and because of the intensified financial and technical disintermediation it is necessary to transform the existing business model. However, from the perspective of regulatory environment, China’s commercial banks are facing higher capital requirements, while the introduction of leverage makes China’s banking sector not only need to focus on improving the quantity of capital adequacy ratio, but also to pay more attention to the quality of capital adequacy ratio. The fourth chapter proceeds with the change in the indicator of capital adequacy ratio, and then reveals the quality of capital adequacy ratio as well as the status of capital structure of various listed banks, and explores for banks the framework of endogenous capital replenishment, driver analysis system and approach to exogenous capital replenishment under the new regulatory measures. The fifth chapter summarizes the problems encountered in the above analysis, and presents from two aspects of capital supplement and risk assets adjustment the countermeasures that should be taken to solve capital management problems facing China’s commercial banks.In addition to constraints from regulatory policies, the capital management of commercial banks are subject to impact that cannot be ignored from such factors as complex financial environment and changes in related accounting standards, but after combing the relevant literature, this paper found that discussions on the impact of financial environment and changes in accounting standards on capital management of commercial banks are not systematic, and therefore with this as an entry point and combined with interpretation of the "China version of Basel Ⅲ", in the context of increased requirements in the new capital management approach for the introduction of leverage and quality and quantity of capital, analyzed and revealed from the financial perspective the quality of capital adequacy ratio and status of capital structure of China’s commercial banks under external regulatory constraints, and constructed an analytical framework of endogenous capital accumulation based on items of income statements, thereby exploring the way to implement exogenous capital replenishment.However, as risk assets configuration and internal economic capital allocation are the absolute core technology of the banks, it was of considerable difficulty to obtain these data. Even though the author has written this paper with the most sincere attitude, due to limitations in data availability and disciplinary background it’s a shame that discussion of these issues is still not deep enough. Nevertheless, this paper points out the direction of future research for the author about to work in a commercial bank and provides the impetus to make further improvements for inadequacies of this paper.