Research On The Banking Capital Allocation In The View Of Macroprudential Regulation

The stability of the banking system plays a crucial role in the growth of macro economy.Regulators and policy makers pay a lot attention to the stability of the banking system.While most of the studies about systemic risk in the network of financial institutions focused on macroeconomic impact,they neglected the risk of default risk contagion in financial system.In order to effectively maintain the stability of the banking system,we need to study the systemic risk of the banking system and put forward effective suggestions to preventing the banking system crisis.Study about bank systemic risk should not only concern about the impact of external shocks to the banking system,but also pay attention to the structure of the banking system and the risk contagion in banking system.This paper establishes a network of banking system based on the fire sale and network externalities mechanism to analysis the connection between bank's tier one capital and systemic risk loss.Firstly,if a bank suffers a loss that is large enough so that it violates its capital requirements,the usually way to improve the capital ratio is to sell assets.If the asset's demand is less elastic,the price of the assets would drop with the selling of the assets,such will cause other banks suffers the devaluation who hold similar assets.When these losses are high enough,other banks would start selling to satisfy the capital ratio initiating a downward spiral in asset price.The interaction between those banks would cause the upward of systemic risk.Secondly,interbank market built the connection between the bank's assets and liabilities,when a bank default and are therefore not able to pay their obligations in the interbank market,the bank who holds the obligations would suffer losses,when the losses are high enough they can create contagion through the network of interbank obligations and cause other banks to default as well.With the channel of fire sell and interbank market,the risk of the bank raise if the bank don't hold enough capital with the risk exposure to the bank system.That means the capital requirements force a bank to internalize some of the externalities that it creates for the bank system and thus reduce the endogenously created risk in the financial system.To find out whether the change of bank capital requirement would affect the overall risk,We drive the total capital requirements as a fixed point and reallocate the capital based on each bank's risk contribution.Firstly,we taken the financial system as a whole,the total capital is decided by the present supervision rules on capital requirements.Secondly,we use the Component Var method to compute the risk contribution of each bank,and relocate the capital each bank holds,as the change of a bank's capital is realized by the interconversion between equity and liabilities.Thirdly,we use the default distance deduce by the CCA method and the systemic loss caused by the risk contagion in the interbank market to reflect the banking systemic risk.By comparing changes between the before and after capital requirements,the overall bank's systemic risk is reduced by 6.9 percent,which can prove the idea of this article is worth the attention of banking regulator.This paper is divided into five chapters,and the content of each chapter is as follows:Chapter one is the introduction of this paper's research background and significance of this topic,and given the definition of banking systemic risk and macroprudential capital regulation.Chapter two summarize the research related to this topic,on one hand,we introduce the generate mechanism of systemic risk and the ways to estimate the systemic risk,on the other hand,we introduce the correlation between macroprudential capital requirements and systemic risk.Chapter three gives the Morton network model of the bank system based on two channels of bank contagion-fire sell and interbank market.By the Morton network model,we induce the basic idea of this paper.Chapter four mainly gives the empirical analysis based on the 16 listed banks in china,with the data on the first season of 2016,we analysis the effects of changing bank capital requirements on the systemic risk.Chapter five summary the conclusions based on the results of empirical analysis,and give suggestions to the regulator about the way could be useful to improve the regulation of systemic risk in China.