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The Capital Adequacy Ratio Of Commercial Bank's Risk Control Effect Study

Posted on:2006-10-14Degree:DoctorType:Dissertation
Country:ChinaCandidate:Q P HouFull Text:PDF
GTID:1116360155460542Subject:Accounting
Abstract/Summary:PDF Full Text Request
The bank capital requirements were carried out on January 1, 1997 in China. Due to different experience of economic development, they are not as strict as the Basel capital regulation .There is no punishment on those banks without adequate capital. The new version of the capital requirements has been implemented since March 1, 2004. The government directly provides capital into four national commercial banks to help them reaching the international standard benchmark, eight percent.Based on the data collected from nineteen banks during the period between the end of 1989 and September 30, 2004, this study investigates whether there are significant differences on asset risk and asset portfolio before and after the capital adequacy regulatory policy by univariable statistical analysis, Also, it examines the relationship between the capital ratio and asset risk to find out which theory can explain banks' risk-taking in China. Final, it investigates whether the risk-based capital adequacy ratio has relative more information content regarding bank risk compared with the ordinary or traditional capital ratio computed from the balance sheet.Based on univariable statistical analysis, the empirical findings are as follows: (1) There is no significant difference on asset risk before and after the capital adequacy ratio regulatory policy implemented. (2) The asset portfolio concentrates on long term loans after the 1997 Basel capital regulation.Based on multivariable statistical analysis, the empirical findings are as follows: (1) There is significant positive relationship between the capital ratio and asset risk in domestic commercial banks. In other words, the bankruptcy theory or regulation theory may explain the association between asset risk and capital after controlling size, liquidity risk, and macroeconomic factors. (2) There is significant positive relationship between the capital ratio and asset portfolio because of increasing the weight of long term loans of asset portfolio. (3) In the capital market, banks with more capital ratio are valued more risky asset positions, so their risk of equity (measured as the standard deviation of stock return) is higher. In other words, the regulatory capital ratio has information content. (4) Because there is a significant relationship between the capital ratio and asset risk, the government can monitor the risk of banks by capital ratio. (5) The empirical evidence based on risk-based capital adequacy ratio is more robust than based on the traditional capital ratio, thus, risk-based capital adequacy ratio can reflects risk better than the traditional capital ratio.
Keywords/Search Tags:Basel Accord, Asset Risk, Capital Adequacy Ratio
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