Research On Capital Management Of Commercial Banks

Capital is the basis of commercial banking operations, and plays deposit protection, risk management and defense, business operation and performance assessment functions. Capital management has high correlation with commercial banks risk. The international commercial banks which established and developed under the market economy system have the inherent risk, so capital management naturally became an important component of banks risk management. Because of the financial vulnerability and the negative externality of the financial system, capital supervision has always been an important part of government regulation on the financial industry. In July 1988, the Bank of International Settlement Supervision Committee passed "the Agreement on Unifying International banks Capital Measurement and Capital Standards", under the background of financial globalization, the agreement unified the international regulation on commercial bank capital, played a positive role on controlling the banks risks and stabling international finance. In view of the new changes of international banking business risks, the agreement experienced several amendments, in June 2004, the Basel Committee released a new capital agreement ultimate edition, that is " the Agreements on Unifying Capital Measurement and Capital Standards: A Revised Framework " which improved the international banks' capital management to a new stage of development, the core of the stage is risk measurement and control.Marketization of China's economy and internationalization of finance have changed the state-owned property right system and the living environment without undertaking the operation risks of commercial bank. As the financial enterprise of "operating independently,assuming responsibility for own profits and losses,undertaking the risks independently,self-restraint", the commercial banks have joined the competition of international banks, and they are facing the strong domestic and international rival and complicated competitive surrounding. The capital management is becoming more and more important to avoid the increasing financial risk. Moreover, according to the New Basel Accord, risk management level and measure technology, capital adequacy ratio, have already become the important symbols of judging the bank prestige and competitiveness. So based on the requirement of the New Basel Accord, strengthening Chinese capital management of commercial banks have already become a precondition of risk management internationalization of China's commercial bank.However, China's commercial bank was born from the planned economy, its property right, management concept and mode, have strong planned economy color, and its market environment also has great gap with the developed country. Over a long period of time, this had led to the weakness and crudeness of risk management and backwardness of methods in the Chinese commercial banking industry. The commercial banks ignores the management of capital, in addition, government capital supervision still stands on formality. These problems have already become the obstacle of implementing the New Basel Accord. So researches on the theories and fulfillment of commercial banks' capital management have already become a quite important task of the reform and development of commercial bank.Beginning from the requirement of Chinese banks implementing the New Basel Accord, this paper at first researches the theoretical foundation of the capital management of commercial banks, discusses the theory model which could be applied to the capital management of the commercial banks. Secondly, the paper reviews the history and status quo of the capital management of the Chinese commercial banks, and points out that since 2004 the capital management has obtained the huge achievement. Capital adequacy ratio was largely enhanced, the single capital structure was improved, the reserves of the non-performance loans had a substantial increase, risk measurement methods continuously improved. Thirdly, the paper analyses the problems faced by the capital management of commercial banks, they are facing enormous pressure to further raise the capital adequacy ratios, lacking the conditions of implementation of the New Basel Accord, imperfect tools and methods of commercial banks risk management, insufficient financial supervisory capability and market constraints and so on, then from the macro and micro levels gives a more in-depth analysis of the reasons for restricting capital management of commercial banks. The paper points out that the micro reasons restricting capital management of commercial banks are capital supplementary system having not taken shape, unsound corporate governance structure, imperfect internal risk control systems, weak risk management concept, and the macro reasons are state-owned property rights system, capital program management system, indirect financing system, the separated financial industry operations, high taxes and lagged financial supervision. Shortly afterward, the paper summarizes the main contents and characteristics of the 1988 Basel Accord and the 2004 New Basel Capital Accord; in the view of the government supervision and capital management of commercial banks, sums up the experience in international banking capital management, concludes the Inspiration for capital management of commercial banks of our country. The paper analysis empirically the relationship between the shareholding structure, assets size, rate of return, the bank's value and capital adequacy ratio by using the least squares method, with the capital adequacy ratio as explanatory variable, on the basis of the panel data (1998-2004) of twelve commercial banks in China. It concludes that the rate of return of the assets has a positive relation to capital adequacy ratio, assets size has a negative relation to capital adequacy ratio and the structure of property rights has an important impact on the capital adequacy ratio of commercial banks. Finally, the writer proposes to strengthen the overall framework of the capital management of China's commercial banks. At the micro level, we have to improve the bank's governance structure; sound risk management and capital management organization system; sound capital supplementary system; vigorously develop intermediary businesses, improve the profitability of the banks multiple channels, implement a stable dividend policy, strengthen tax planning. At the macro level, we have to abolish the state holding shares on commercial banks, establish the ownership structure which in favor of the bank's governance; implement the capital supervision system in which large and small banks have different control; accelerate the construction of rating agencies; reform the tax system; develop direct financing, accelerate the mixed financial operation.The paper is totally divided into seven chapters. Chapter one is introduction. Chapter two is the theoretical foundation of the capital management of commercial banks. Chapter three is the historical and status quo of the capital management of commercial banks. Chapter four is the analysis of the problems and causes of the capital management of commercial banks in China. Chapter five is the experiences of the international capital management of commercial banks. Chapter six is the practical analysis of capital adequacy ratio and other variables. Chapter seven is the theory of strengthening the structure of the capital management of commercial banks in China.