A Study On The Leverage Ratio Procyclicality Of Commercial Banks In China

In 2008, the international financial crisis erupted absolutely. Before the crisis, the main commercial Banks in European and American countries had maintained a higher capital adequacy ratio, but they did not run away from the impact of the financial crisis, suffered severe losses. The vast majority of financial institutions took the deleveraging strategy in the crisis, and even after the crisis, namely to raise the proportion of capital in the total assets, in order to reduce risk. At the same time, the international community carried on a profound reflection of the capital supervision system. They summarized that it was not complete to measure and monitor the systemic risks of commercial bank only on capital adequacy ratio index. Therefore, in December 2010, the Basel Committee had issued a third edition Basel. The agreement put forward the leverage ratio index for the first time, and cleared its important position of capital supervision system in Basel Ⅲ. To a certain extent, Leverage ratio index had supplemented the deficiency of the capital adequacy ratio. C hina banking regulatory commissio n(C BRC) according to the Basel Ⅲ, drew lessons from foreign regulation national implementation of the leverage ratio practice experience, and combined with the actual situation in the development of banking in C hina. On June 2, 2011, the CBRC promulgated the measures for the administration of the commercial bank leverage. The approach expounded the system of leverage ratio, and explained the calculation of the leverage ratio and regulatory principles. So, the position of leverage ratio in capital regulation system should not be ignored. Therefore, it was very necessary and significant to conduct some relevant study on the leverage ratio of the commercial banks.This article would conduct a n empirical study on the procyclicality of the leverage ratio of commercial bank s in our country. The literatures studied on whether the leverage ratio of bank was pro-cyclical in Foreign were empirical research for the most part, and mainly for the United States, Canada, Europe, Turkey and other countries and regions, and they held the consistent conclusions that the leverage of bank is not only pro-cyclical, but also different performance during types of bank. Domestic research on whether leverage was pro-cyclical was very small. The related research mainly focused on the effect on banking from leverage ratio supervision, and the empirical study on the pro-cyclical of leverage was rare. Therefore, it was necessary to analysis the problem in detail from the perspective of empirical analysis.Firstly, this paper briefly expounded the concept, and analyzed the formation mechanism of pro-cyclical from the balance sheet. Secondly, this paper reviewed the course of capital regulation in our country, analyzed the present status of the leverage ratio, and analyzed the relationship between leverage ratio and the national macroeconomic indicators GDP growth rate and growth rate of exports in C hina. The analysis results showed that the leverage ratio was pro-cyclical. Then, this article used the data of 151 commercial Banks in C hina, from 1999 to 2013 to carry on the inspection for the pro-cyclical of leverage ratio. Through the empirical analysis, this paper reached the following main conclusions. The leverage ratio of commercial Banks in China was pro-cyclical. The position of bank in the interbank market was different, and its performance of pro-cyclical was different. The unlisted bank’s leverage ratio pro-cyclical underperformed the listed. Large commercial banks leverage ratio pro-cyclical strongest, followed by city commercial banks, rural co mmercial bank was the weakest. In the wake of the financial crisis in 2008, the procyclicality of Bank leverage ratio was more evident than it before the crisis. Finally, this paper put forward countermeasures to reduce leverage ratio procyclicality from the perspectives of bank, regulator and monetary policy. In order to apply the leverage ratio better, banks and regulators need to continue to pay attention and in-depth study of a leverage ratio. In response to the pro-cyclical leverage, Banks should build a counter-cyclical mechanism. Supervision department should publish relevant policy at the same time. In a certain extent, It could not only make up for the inadequacy of mechanism of the Banks themselves, but also limit bank risk-taking. Eventually it reduces the effects of pro-cyclical adverted on the economy. The relevant regulatory policy of leverage should be formulated and implemented based on the characteristic of the C hina’s banking. It was namely that applied regulation and standards which conformed to the Chinese banking market. In addition, due to the different types of bank in our country had great differences in pro-cyclical, so the article suggested that implement differentiation standard for different types of bank.