The New Basel Ii Framework For Effective Banking Supervision

In 2004, the Basel Committee formally released the New Basel Capital Accord. The agreement was reached among world's major countries to implement the New Accord in 2007 instead of the original Basel Accord in 1988 as an international banking "rules of the game". According to "China's banking sector guidance for the implementation of the New Capital Accord" (CBRC [2007] 24) promulgated by China Banking Regulatory Commission in 28 February 2007, China will gradually implement the new Basel Capital Accord among active operating business agencies and large commercial banks with a significant proportion of international business from 2010 to 2013.However, in 2008, U.S. subprime mortgage crisis triggered global financial turmoil. Citibank, HSBC and other global famous commercial banks have been hit hard. Though the new Basel Capital Accord was not put into full implementation before crisis, the crisis had revealed some defects of Basel "three pillars", that is capital adequacy regulation, market discipline and on-site inspection.Since 2003, with the official launch of the Chinese State-owned Commercial Banks Reform and accelerated China's accession to WTO foreign banks, China has made considerable progress in market-based development. What is the position of China's current capital adequacy regulation and the effectiveness of market discipline mechanism? How will we assess the exposed flaws the new agreement in the current round of the international financial crisis? How to draw relevant lessons to improve the standard of the new agreement on China's commercial banking supervision in the future? This is the starting point of this paper.From global perspective and in line with the principle of unity of history and logic to the Basel Capital Accord, this paper discusses how to realize effective banking supervision following the New Basel Capital Accord to achieve both "bank stabilization" and "Bank efficiency" in the three-dimensional analysis framework of theory, practice and standard.This paper is divided into six chapters.The first chapter is the introduction. It introduces the research background and significance, research framework, methods, the lack of major innovation, and related literature are reviewed.Chapter II is the theoretical basis to achieve effective banking supervision. It includes economic characteristics of banks, banking supervision, and economic interpretation of the main goals of bank regulation means.Chapter III is the international unity of practice for effective banking supervision. It explores the New Basel Capital Accord continuous improvement process, analyzes the content and the relationship of three pillars, emphasized the importance of full implementation of the agreement in post sub-prime crisis era.Chapter IV is the research on capital adequacy supervision theory and practice. This chapter first summarizes capital adequacy content, practical effect and its development history. Then it studies the impact of the deposit insurance system and capital structure on Capital adequacy regulation, explores the exposed capital adequacy regulation defects in the sub-prime crisis, and finally put forward sound countermeasures for the new Basel capital adequacy regulation.The fifth chapter is on the market discipline theory and its practice. This chapter first studies the meaning of market discipline, its development history, operation mechanism and the main role. Then it explores effective market discipline factors, and finally corresponding countermeasures are discussed from the perspective of market discipline supervision of the U.S. sub-prime mortgage crisis. Through the perspective of research, theory and practice, it reveals market discipline's complementary role in government regulation.Chapter VI is the empirical analysis on the capital adequacy of China's banking supervision and market discipline. This chapter is also based on the empirical results and the lessons from U.S. sub-prime mortgage crisis for the establishment of effective China banking regulation.Main innovations of the paper are as follows:(1) From new perspective. This article is from a new perspective to define and analyze effective banking regulation. In the effective targeting of bank supervision, the paper emphasizes that the construction of an effective regulatory system should be established in the coordination of banking stability and efficiency. Statistical model is used to illustrate the unity of bank stability and efficiency. In the implementation process of effective banking supervision, the main regulatory and supervisory powers are described from three-dimensional analytical framework of theory and practice (national practice and international unity of practice) and standard. Consistent in logical approach, this paper discusses the mechanism of capital adequacy regulation and market discipline, seeking to achieve bank stability and bank efficiency in the integration of different regulatory mechanisms and coordination of difference power capacity.(2) Within the framework of the New Basel Capital Accord, exposed regulation flaws during the U.S. sub-prime crisis are viewed and relevant policy recommendations are made. In the world financial center, the U.S. sub-prime mortgage crisis has triggered global financial turmoil. What regulatory defects are exposed? How to strengthen and improve future monitoring and thus to avoid a similar crisis from happening again? This paper has systematically studied these issues. In connection with the New Basel Capital Accord, this paper made in-depth analysis from the perspective of capital regulation and market discipline. Specific practice for the adjustment and reform of the global financial system and financial supervision to strengthen China's banking supervision are proposed in order to provide the corresponding reference. The study itself has significant practical value.(3) More scientific empirical studies are conducted on capital adequacy regulation. The past research on the effectiveness of bank capital adequacy regulation almost always used simple financial indicators as the dependent variable to judge the validity of capital adequacy regulation impact. Although this method can reveal the effectiveness of capital adequacy regulation, it can not fully disclose working mechanism of capital adequacy regulation on bank financial performance. In fact, banks'financial performance and operational efficiency are closely related to the capital adequacy regulation. Banking operating efficiency will have an impact and then further make changes in the bank's financial performance. The approach studying on bank capital adequacy regulation is the first is using DEA software to measure the efficiency in a more scientific way. After efficiency decomposition, correlations are found between capital adequacy rates of return, bank capital adequacy ratio and decomposed banking efficiency.(4) To achieve effective banking supervision is a comprehensive new issues related to finance, new institutional economics, business theory, contract economics and industrial organization science. This article tries to build the implementation of the framework for effective banking supervision with multi-disciplinary knowledge and more comprehensive, scientific approach.