Capital Requirements With The Bank Asset Portfolio Behavior And Its Macroeconomic Effects

The 1988 Basel Accord was an important milestone in the history of the banking supervision, which symbolized the capital supervision became the core and the international standard of the prudential banking supervision. As China Banking Regulatory Commission was established in 2003, the capital supervision in Chinese banking industry was transmitted from the system construction to the gradual implementation and the emphasis of banking supervision was transmitted from the institutional supervision to the risk supervision. What impact and how much does the capital regulation centered on capital requirements have on the commercial banks' behavior? By what mechanism does the impact work? What impact and how does the capital supervision have on the macro-economic fluctuation and the monetary policy pass-through? These are not only theoretical problems, but also practical one. They involve such policy challenges as how to improve the efficiency of capital regulation centered on the capital adequacy requirement, how to understand the pass-through mechanism of monetary policy and how to improve the coordination between the banking capital regulation and the monetary policy under the background of the market-oriented reform of Chinese banking industry and the changing target function and constraints of commercial banks.In practice, many commercial banks hold much higher capital than the minimum capital adequacy. This dissertation begins with this fact and analyzes the optimum capital ratios selection under the exogenous constraint of the minimum capital adequacy requirement. With the theoretical research of banks' optimization of capital ratio selection under the constraint of the capital adequacy requirement and the analysis on the experience of the capital ratio change in other countries' banking industry, it is found that the active management of bank capital and the endogenesis of exogenous capital constraints are the important conditions for the realization of efficient capital regulation, and the optimum capital ratio based on banks' prudential motivation is effected by banks' strategies, supervision constraints and market constraints, with an apparent anti-periodic feature. In China's banking industry, state-owned capital means the credit guarantee by the government, and in the early years when the government invested with its reputation, the state-owned banks' capital only had an accounting meaning. However, government reputation is not costless, and it often distorts the incentive and constraint mechanism for bank operations and induces lots of non-performing loans. In China's banking industry, the capital ratio is much more increased with the promotion of the market-oriented reform and the implementation of capital supervision in recent years. However, compared with international banks, the capital ratios of domestic banks which meet the supervision requirement are still in a very low level by quantity. And by quality the large capital ratio increase of domestic banks mainly rely on external policy financing, not on internal financing through the increasing of risk management ability and thus the improvement of profitability. Therefore, the sense and ability of capital management is still very weak, and the capital management still stays in a passive stage, not in an active one. In present China, the major role of capital adequacy constraint is to restrain banks from assets expansion although with the deepening of the market-oriented reform the other three functions besides form preventing banks from bankruptcy will gradually take on.Therotical analysis and international experiences show that the capital requirement indeed constrains the expanding speed of bank credit assets, and bank maybe tightened their credits at the initial-implementing periods or influenced by bank crisis.Besides,the capital requirement isn't sure to improve the average quality of bank credit assets,which is concerned with incentives in different supervisory institutions.Empericial analysis,used 12 micro-bank balance panel data,shows that capital adequacy requirement significantly decreases the growth rate of bank loans and capital requirement produces some effects.However,the growth rate of bank loans,especially inadequate-capial banks,is still high,which reflects that supervisor is not strict in implementing the capital standard.Bank credit channel is very important in analying China's Economic Cycle. This dissertation try to construct a dynamic stochastic general equilibrium model and make a new comprehensive analyzing framework to the relationship between bank loans and economic fluctuations,including monetary authority,banking sector,intermediate goods sector,final goods sector and houshould, and ntegrating traditional bank credit channel and bank capital channel.Based on this framework,we dicuss the impacts on bank behavors and economic fluctuations when object function and constraints changes ,and analyzing the impacts of five exogenerous shocks on bank loans and China's economic fluctuations,emphasizing on the macroeconmic impliations of bank capital requirement and monetary policy.The conclusions show that bank capital requirement may be procyclical and enlarge some macroeconmic variables' fluctuation.when market power increases and bank's object function changes from porfit-maxmization to value-maxmization,the fluctuation of deposits and loansjnterest margin and other econmic variables decrease.With the implemention of new basel capital accord fluctuation of deposits and loansjnterest margin and other econmic variables may increase as the procyclity of risk-weight eendogenesis.