The Research On Countercyclical Capital Buffer Mechanism In China Banking Under Basel â…¢ Perspective

With the eruption of U.S. subprime crisis evolving into global financial crisis rapidly, all circles of society rethink profoundly on the existing supervision system. Basel Committee officially announced the Basel â…¢ in2010, countercyclical capital buffer mechanism was put forward for the first time. Nowadays, the international financial regulation has changed a lot, under such a background, it is necessary for Chinese commercial banking system to build countercyclical capital regulation framework from the perspective of macro-prudential. Overall, the researches about countercyclical capital buffer mechanism in China is still in its early phase. The capital buffer of Chinese commercial banks is pro-cyclical or counter-cyclical and the choose of capital buffer anchor are need to be studied further.This paper constructs the dynamic panel data model and uses system-GMM estimation method to test the cyclicity of capital buffers in Chinese commercial banks. We put three dummy variables which stand for government recapitalization, list, subodinated debt into benchmark model in view of Chinese reality. Domestic scholars pay little attention on the different behavior of capital buffer in different economic cycle. This paper further researches cyclity of capital buffer by dividing the economic cycle into different stages. The results show that capital buffer of Chinese commercial banks is countercyclical. The capital sources, such as issuing subordinated debt, listing and financing, may be the important ways for banks to increase capital buffer in short times. The sensitivity to economic cycle of capital buffer is asymmetry and the capital buffer is strongly influenced by economic fluctuation during economic downturn.Nowadays, domestic literatures on the selection of anchor variables of countercyclical capital buffer is very few. This paper tries to make innovation in this regard. This article selects the quarterly data from2001to2013and uses factor analysis method to measure the financial system vulnerability, and then uses KLR model to analysis the early warning capabilities of relevant variables. The results show that the credit-to-GDP gap proposed by the Basel Committee provides a reliable signal for the adjustment of countercyclical capital buffer. At present, this indicator is the ideal anchor variable in China. This paper proves that the countercyclical capital buffer mechanism proposed by Basel Committee is feasible for solving the actual situation in China. The Basel countercyclical capital buffer mechanism in China has certain feasibility and applicability.