The Study Of Effectness Of Captical Adequacy Ratio On Credit And Economics

Based on the explanation of capital requirements and its evolution included in the Basel Accord, This paper recalled the impact of capital adequacy ratio regulatory of Basel Accord on bank credit and economy in major developed countries. Meanwhile we analysis the implementation of the capital adequacy ratio regulatory and its impact; on the basis of theoretical studies, the author discussed the economic theory of the CAR (Capital adequacy ratios as referred to in this regulation are the ratios of capitals held by the commercial banks and defined by the regulation to risk-weighted assets of commercial banks) taking effect on credit and economic, and empirically studies the impact of CAR regulation on bank credit and economic in China. The results show that the CAR would have a certain degree of influence on bank credit, output and monetary policy transmission. The conclusion is meaningful for the full implementation of the new Basel Accord.This thesis is divided into five parts:Chapter 1 is the Introduction. This chapter introduced the background and significance of the study and reviewed the related literature. The related research literature is mainly concerned with the following areas:Whether and How the CAR impacted on bank credit, monetary policy and economy. Summary of the related literature is the basis of the study. However, the related research doesn't quantitatively analyze the extent to which the CAR effects on economy and by what mechanism.In Chapter 2, the author discussed the theoretical mechanism of how CAR affects the credit and economy. First, the credit crunch caused by capital regulation is a direct impact on the economy. The impact of the CAR is conducted in two phases:1. Capital regulation led to the credit crunch of commercial banks; 2.Credit crunch had an impact on economy; Second, capital adequacy ratio would have an impact on the monetary policy. The main mechanism is as follows:1, The micro mechanism. Originally, the CAR will affect the "credit channel mechanism" of the monetary policy. And consequently, under the capital regulation, the bank capital would affect the credit channels of monetary policy, which we called " bank capital channel".2, The macro mechanisms:Capital adequacy ratio will increase the impact of tightening monetary policy and reduce the impact of expansionary monetary policy. The conclusion of this part is the basis of empirical studies in the next chapter.Chapter 3 studied the implementation of CAR and its impact. First, we have inspected two typical cases:the United States and Japan, which show that the implementation of capital regulation has an important impact on the national economy. In the early 1990s, both the United States and Japan implemented the Basel Accord. However, there came the credit crunch and economic recession after the implementation of Basel Accord. This part provided the empirical support for our study. Next, the article analyzed the implementation of capital regulation, commercial banks'current capital situation and its impact on the bank credit and economy. Through the analysis of data, we can see that the increase in CAR of banks resulted in credit crunch. This is consistent with other study results, which show that capital regulation will cause credit crunch. This Chapter provided a basis for quantitative empirical analysis below.Chapter 4 is the empirical study of the impact of CAR regulation on bank credit and economy in China. Based on the model proposed by Gambacorta, L. and P. Mistndli (2003). We used OLS estimation method to estimate the model. After building the VAR (vector auto regression) model, we used the impulse response function to analyze the credit's impact on economy. The results are as follows:if the CAR is reduced by 1%, credit would reduce by 0.32%; CAR also influenced monetary policy. "Bank capital channel" exists. It is probably because those commercial banks in China had serious maturity mismatch phenomena. For example, around 1% reduction of CAR would lead to output declined by 0.5%, which means its impact is very small. The CAR doesn't significantly affect prices. It doesn't affect interest level either. Because of the special interest rate management system in our country, the interest rate will not be affected.In Chapter 5, we studied the actuality of CAR management in China's banking sector and introduced the experiences of advanced banks in the world. In conclution, how a bank make a good capital situation through setting up a dynamic system of mitigation banking supervision with the economic cycle effect. The main innovation of this paper is mainly reflected in the following points: 1,through thetheoretical analysis,the article investigated the theoretical mechanism of how CAR affects credit and economy. Because no previous research explained the specific mechanisms, this is one of the main innovations.2, on the basis of the foreign theories and empirical studies, this paper empirically studied the impact of CAR regulation on bank credit and economy in China. From the quantitative perspective, we analyzed the extent to which CAR affects the credit and economy, and verified that the monetary policy effects exist.3, unlike other theoretical and empirical research, this paper mainly explores CAR-credit-economy research ideas, which makes this paper more compact and logic.However, in the process of quantitative analysis, the data was hard to collect, so we used some alternative indicators, which might influence the accuracy of the conclusion.