The Impact Of Capital Adequacy Ratio To China’s Monetary Policy Transmission

Credit theory is one of the main theory of monetary policy transmission mechanism. Commercial banks are the subject of credit, which will directly affect the monetary policy transmission. After the financial crisis, BCBS introduced Basel III in 2010, China Banking Regulatory Commission has also introduced a series of regulatory measures, such as the "Commercial Bank Capital Management (Trial)", etc. They have defined definition of capital strictly, strengthen capita! constraint mechanism, and taken more attention to the regulatory of capital adequacy ratio. However, the elevation of Capital Adequacy Ratio will influence the supply of bank credit, thereby affecting the effectiveness of monetary policy transmission. So the research on the impact of capital adequacy ratio to the monetary policy transmission is important.This article sort out literature first, and analyze the monetary policy transmission channels, including bank capital channel, the credit channel and the balance sheet channel. Then we take descriptive analysis for monetary policy transmission, and analyzed by the panel with empirical data. The study subjects were divided into a high capital adequacy ratio bank and lower capital adequacy ratio bank to research of the impact of the level on the monetary policy transmission. We treat 2004 as the cut-off point, after which the regulatory authorities begin to improve the level of capital, the banks changes the size of credit, in order to meet the requirements of capital adequacy ratio to affecting the monetary policy transmission. However, according to recent regulatory requirements of Basel, systemically important bank’s capital adequacy ratio was 11.5%, non-systemically important bank’s capital adequacy ratio was 10.5%, according to this requirement, we take agriculture, construction 11.5% as measured and other commercial banks take 10.5% as measured. Through the study we found in the bank of higher capital adequacy ratio the bank balance sheet channel and the credit channel exists, they can conduct expansionary monetary policy smoothly, weakening the effect of tightening monetary policy. The lower capital adequacy ratio banks, credit channels exist but inhibiting expansionary effect of monetary policy, exacerbated tightening effect of monetary policy. In this view, we should improve the profitability of commercial banks to broaden its financing sources, and perfect macro-prudential supervision system to achieve unity of regulatory objectives and monetary policy objectives.