Capital Adequacy Ratio, Monetary Policy And Bank Credit

With the trend of economic globalization, cross-border capital flows are increasingly frequent. The continuously increasing international capital flows, especially a large number of short-term speculative international capital flows deteriorate the spreading and transmitting of financial crisis, which affect financial stability and the economy environment. As what mentioned above, the Basel Accord is initialized to impel the standards of capital adequacy ratio regulation by commercial banks, intending to prevent banks risk. Capital adequacy ratio regulation is pro-cyclical, which makes a significant influence on those behaviors of commercial banks such as credit decisions, risk preference and portfolio management. However, monetary policy control is counter-cyclical, and its effect could be influenced by some factors such as cross-border capital flows, commercial banks behavior and credit supply. It is thus clear that short-term international capital flows and the bank’s capital adequacy ratio regulation will have a profound influence for the effect of monetary policy. In the perspective of short term international capital flows, the topic that this article chose to research is the correlation among capital regularity, monetary policy and bank credits, optimizes China’s financial policy, and has important theoretical and practical significance.Since the implementation of Basel Accord in 1988, the foreign academics noticed the correlation among the capital adequacy ratio regulation, bank credits expansion and the monetary policy transmission. Moreover, after the 2008 financial crisis, this issue was getting increasingly concerned by international authorities, and the importance of the coordinate of various financial policy was more and more realized. Since domestic research on this issue started later than abroad, the systematic and prospective researches on the topic are important for China. Currently, China established the strategy of constructing an open economy system, and will prudently and orderly opens its capital regime. This will bring larger, wider and more frequent international capital flows, thereby makes a significant influence on the stability of domestic banks, the fluctuation of the economy and the effect of monetary policy. In the mean time, China, as an important member of Basel Committee, is promoting the implementation of Basel III in domestic. A trial version of “Commercial Bank Capital Management Method” is promulgated, which is a milestone that indicates the Chinese version of Basel Accord is officially launched. Since then, higher and more compulsory requirements are put forward on capital adequacy ratio regulation for China’s banking sector. Therefore, the research on the influence for bank’s credit decision and capital adequacy ratio, as well as the impact for counter-cyclical monetary policy, which both bring by the short-term international capital flow will help us achieve various monetary policy and realize the goal that finance could effectively serve the substantial economy.This article includes five parts: Firstly, the article begins with the academic background and purpose, defines the relevant concepts, discusses the status of relevant studies at domestic and foreign, and proposes the research thought, framework and innovation. Secondly, it constructs the basic of the article, optimizes credit decision of a bank under the Lagrange Equation, analyzes the influence the effect that caused from short-term international capital flow to bank’s molecular credit decision and capital adequacy ratio, simulates the optimized behavior of bank’s credit decision under the restriction of credit adequacy ratio and reserve requirement by simulating balance sheet. Thirdly, it analyzes the correlation between capital adequacy ratio and monetary policy transmission in the condition of short-term international capital flows, verifies that the effective credit channel is presence in China’s monetary transmission and pro-cyclicality is presence in capital adequacy ratio regulation, analyzed the influence of monetary policy caused by the domestic and foreign regulation of capital adequacy ratio and short-term international capital flow, optimizes Bernanke’s CC-LM model, combined the KCC-LM by Yongjun Jin, and introduced KCC-LM-BP model. Fourthly, it analyzes the real impact of the credit supply of China’s main commercial bank which caused by short-term international capital flow, capital adequacy ratio and monetary policy based on the quarterly panel data of China’s banking sector through 2005-2014, using the stepwise regression method, indicates that monetary policy tools make significant influence on credit supply, especially in the condition that the indirect financing are the main channel for China’s bank, also indicates that when adopting counter-cyclical monetary policy, central bank should take into consideration of the influence on credit supply by the increased requirement of capital adequacy ratio regulation and the drastic fluctuation of short-term international capital flow. Lastly, it demonstrates the goal of this article, which is to establish the effective coordination mechanism among short-term international capital flow management, bank’s capital regulation and monetary policy based on the international experience such as Korea, Brazil and USA.Based on the current study from both domestic and foreign, this article conducts some explorations from several aspects. Firstly, this article strives to be prospective and choose to research the relationship between capital regulation and monetary policy under the effects of short-term international capital flow, since China will construct a increasingly opened environment. At the same time, China is promoting BASEL III which has stronger pro-cyclical and higher requirement of capital regulation. Since then, this article analyzes the influence that senior capital measurement method brought to monetary policy. Secondly, this article tries to introduce 4 closed economic models in product market, money market, credit market and bank capital market based on the CC-LM model that introduced by Bernanke and KCC-LM model that introduced by Yongjun Jin, construct KCC-LM-BP model optimizes 5 opened market models which concerned balance the international payment. Moreover, this article analyzes the change of the influence that capital adequacy ratio regulation brought to the effects of monetary policy under different scale of short-term international capital flow. Thirdly, this article analyzes how the short-term international capital flow affects bank’s capital adequacy ratio through credit risk and market risk exposure. This could enhance the financial regulatory authorities’ understanding of how the short-term international capital flow affects capital adequacy ratio. Lastly, this article obtains the panel data of main banks of China from 2004 and empirically analyzes the real influence on bank’s credit availability under factors such as short-term international capital flow, capital adequacy ratio and reserve requirement.Through theoretical model and empirical analysis, based on the behaviors of bank’s optical credit decision, this article brings up the correlation among short-term international capital, capital adequacy ratio regulation and monetary policy transmission. Moreover, it gives specific suggestions on the questions such as how to manage short-term international capital flow, draw on advantages and avoid disadvantages, remit pro-cyclicality of capital adequacy ratio and construct the effective coordination mechanism of financial policy.