Research On The Effectiveness Of Capital Adequacy Requirement On Chinese Commercial Banks

The capital is the foundation of the survival and development of the commercial banks,and the capital regulation is the core of banking supervision. Since the implementation of "Basel Capital Accord", capital standard has turned into a generally accepted international standard to measure the stability of single bank and even of the whole banking system, as an important benchmark to maintain fair competition in banking industry. Since capital regulation play an important role in banking supervision,the effectiveness of capital regulation will affect the safe operations of commercial banks and the stability of macroeconomic. After several financial crises, capital regulation has made considerable development. However, commercial banks are in constant innovation and development, supervision of commercial banks also need to improve continually to meet the development of commercial banks. The broke out of 2008 subprime crisis let the financial regulators to be widely questioned, commercial bank capital regulation has been pushed to cusp once again. Why can't capital regulation let bank operation robust enough? China's finncial system is relatively closed so that our financial institutions escape from this disaster temporarily. But with the increasingly open of China's financial, can our capital regulation help commercial banks to resist risks and protect the economic stability if next crisis come?The article follows this research path that from theory to practice:analyzed the necessary of capital regulation to the commercial banks from the theory, and find out the theoretical basis to identify the effectiveness of capital regulation; reviewed all stages of development of commercial bank capital regulation at abroad from the practice. The foreign Capital Regulation experienced four stages:Subjective capital regulation, objective capital regulation, "the Basel Capital Accord" unified control and supervision of sub-prime crisis. Capital Regulation in China experienced the blank capital regulation, capital regulation of soft constraints, capital regulation of hard constraints and supervision of sub-prime crisis. After reviewed the practice of capital regulation, under the current capital regulation, the article analyzed the capital changes of commercial banks and ways to improve capital adequacy in China. Based on the analysis of theory and practice, this paper researched three aspects of the effectiveness of capital regulation in China:Does capital regulation reduces the risk of commercial banks; capital regulation affected the macro-economy; capital regulation is undermined long-term competitiveness of commercial banks. The primary objective of capital regulation is to reduce the risk of commercial banks, which is the ultimate goal of capital regulation. Capital regulation can affect the macroeconomic and business cycle from directly and indirectly. Indirectly, capital regulation can affect macroeconomic by monetary policy transmission. Directly, capital regulation can affect macroeconomic by Commercial bank loans. Capital Regulation Influenced the bank's long-term competitiveness banks, judge the impact need Consider three aspects:the competition of banking and capital markets, commercial bank's profitability and degree of fair competition in the banking industry. Strengthening of capital regulation may lead to reduced commercial bank credit, thereby weakening the commercial bank's competitiveness, will also reduce the profitability of commercial banks, but the strict and unified supervision of capital is conducive to fair competition in the banking sector.The results show that, first of all, Banks all rise their capital adequacies under the pressure caused by the capital regulation regardless of whether their capital adequacies are satisfactory. And the capital regulation also contributes to reducing the risk of commercial banks,but the effect is gradually weakened; Secondly, the capital regulation worsens the macroeconomic in the short term, but in the long term, the banks with high capital adequacy ratios are less obvious than banks wiht low capital adequacy in adapting to economic cycles, which shows that the capital regulation plays a "stabilizer "role on macroeconomic; Finally, the capital regulation weakens the competitiveness between banking and capital markets to some extent; the capital regulation has little effect on the profitability of Chinese commercial banks, which is mainly affected by other factors; the capital regulation affects the level of competition in the banking sector to a certain extent,but what affects present level of competition in the banking sector is not the regulatory capital mainly, that is the capital regulation has a tiny effect on maintaining fair competition in the banking sector.Overall, the capital regulation not only urges commercial banks to raise the capital adequacy ratio, but also has a positive effect on macroeconomic. However, it undermines the long-term competitiveness of commercial banks to a certain extent.Capital Regulation in China has borne some fruits,but there are many areas for improvement, especially in the context of the current financial crisis. According to the results of the analysis on the effectiveness of China's commericial bank capital regulation and the ill-performance of capital regulation during the present financial crisis, we advance in this paper some effective suggestions on how to improve the effectiveness of China's capital regulation. (1)establish of mechanisms for counter-cyclical capital regulation; (2) the establishment of Regulatory capital incentives; (3) Carry out regulatory policies in accordance with other macro policies(4) improve the capital adequacy ratio measurement system;(5) improve the capital quality;(6) strengthen regulation of the off balance sheet iteams;(7)establish a diversified capital added sourse.