Studies On The Effect And Efficiency Of Bank Capital Regulation

Bank capital adequacy regulation has been adopted by more than 100 countries, but there is no widely accepted rationale based on economicstheory and no definite framework of some notions and relative theories of bank capital adequacy regulation. This paper analyzes factors that affect the efficiency and effectiveness of capital regulation based on theories of institutional economics and evolutionary economics, and provides some countermeasures to improve the efficiency of capital regulation and some ideas for Chinese capital regulation as follows: Firstly, whether the capital regulation is effective or not is determined not only by the current bank capital position but also some other factors such as bank franchise value, the local financial environment and the multilevel principal-agency that cause the same capital regulation mechanism to produce different effects in different banks. Secondly, effective bank capital adequacy regulation is not always being efficient, as capital regulation protects the benefits of depositors, it may increase social cost at the same time. Thirdly, the minimum capital adequacy may ensure the pay-off of deposit and the safety of banks, but it can not be excessively relied on because under some circumstance it may be ineffective, so the success or the long-term safety of a bank depends on its self-administration and its risk control quality. Therefore, regulation needs the interference of exterior regulation forces and also stresses interior motivation. So we should deal with the relationship of capital regulation to self-administration quality and the relationship of regulation forces to market discipline in a optimal mixture , and only if so, the Pareto efficiency of bank capital regulation can be achieved.