The Procyclical Characteristics Of Chinese Commercial Banks And The Countercyclical Buffer Of Basel Ⅲ

The interaction of macro-economy and financial sector variables has long been an object of interest to economists. Since the global financial crisis of 2007-2008, the importance of the procyclicality in the banking sector has been highlighted. The pos-itive feedback mechanism between the banking system and the real economy expands the credit cycle and economic fluctuation, which will lead to the economic crisis and the instability of the financial system. Therefore, seriously studying the procycli-cal features of Chinese banking has great practical significance for formulating the countercyclical regulation policy and alleviating the procyclicality.In chapter 1, we mainly introduce the research background, research problems, main work and the structural arrangement of this paper.In chapter 2, we summarize the research literature about the performance, causes and influence of the banking procycylical behaviour.In chapter 3, we apply time-varying Copula combined with GARCH model to research the procyclical feature of Chinese banking. The results show that the pro-cyclicality of Chinese banking is asymmetric, which the dependence between loan growth and economy growth is stronger during the decline stage than the rise stage of economy. The asymmetric credit ratings change may induce loan growth’s asym-metric procyclical behavior by the credit supply channel. And also, the asymmetric monetary policy effect and the asymmetric herd behavior of bank managers may also contribute to the asymmetric procyclicality.In chapter 4, we apply STR (Smooth Transition Regression) model to research the asymmetric feature of procyclicality furtherly. The research outcome of STR model is similar to the copula approach. Loan growth is more correlated to economy growth during the decline stage than the rise stage of economy.In chapter 5, we study the relationship between macroeconomic fluctuations and banking’s credit risk using time domain and frequency domain analysis method. The results indicate that the relationship between them is inconsistent in the short term and long term. In the short term, rapid economic growth can make banking NPL ratio declined, while economic growth will lead to higher levels of credit risk in the medium and long term. This can be contribute to the lag effect of accumulated systemic risk of excessive credit growth accompanied with economic growth.In chapter 6, we comprehensively analyze the relationship between economic growth, credit growth and credit risk. There is a strong positive correlation between economic growth and credit growth. In the short term, rapid economic growth and credit growth can make commercial bank’s credit risk level declined. But in the medi-um and long term, rapid economic growth and credit growth will make the commercial bank’s credit risk level increased.In chapter 7, based on our research outcome of the relationship among economy growth, loan growth and credit risk, we recommend that China should implement the countercyclical buffer policy proposed by Basel III, which can ensure the financial institutions can maintain the flow of credit in the down stage of economy and prevent from excessive growth of credit in the up stage of economy. Besides, based on the asymmetry of procyclicality, we suggest the authority can use high frequent index for signalling the start point of releasing countercyclical buffer and accelerate the releasing pace to avoid the supply of credit being constrained by regulatory capital requirements in downturn.