Research On The Risk-taking Behavior Of Commercial Banks Under The Capital Regulation Constraints

Commercial banks are special enterprises carrying on currency with special capital structure of low assets-liabilities ratio and low self-owned equity which determine the particularity of banks capital regulation. Only when commercial banks asset and liability well matched and maintain abundant liquidity, can their operating status be stable. The global crisis triggered by Subprime Crisis in2008and European Debt Crisis in2012have both raised the importance of capital regulation, and the core of banks capital regulation is how to play a discipline effects on banks risk-taking behavior in order to meet the needs of macro-prudential and micro-prudential supervision and fulfill the commercial banks’needs of safety, liquidity and profitability. Therefore, this paper seizes that how the capital regulation constraints play the role of constraints effects and inhibit commercial banks’risk-taking behavior, raise the proposition of Research on the Risk-taking Behavior of Commercial Banks under the Capital Regulation Constraints from the introduction of the regulation penalties and the static and dynamic effects of regulation factors perspective to study banking capital regulation mechanism of constraints on banks risk-taking behavior from. The paper is stretching from the following four different areas:First of all, state the relationship between capital regulation constraints and banks risk-taking behavior. Starting from the specificity of banks regulation capital, analyze specificity of the motivations,the goals and the key points of capital regulation; analyze capital regulation constraints inhibition and motivation effecting on banks risk-taking behavior; deeply analyze the five constraint conditions of capital regulation constraints on banks risk-taking behavior which include deposit insurance system and regulation effort level (or regulation penalties), industry competition, market discipline, capital scale and buffer, capital cost and credit decisions. This research explains the key factors of capital regulation constraints effective inhibiting banks risk-taking behavior, and can be certain used for raising the effectiveness of capital regulation constraints.Secondly, analyze the static mechanism of capital regulation constraints on banks risk-taking behavior to cover bank optimal risk-taking level how to reach the social optimal risk-taking level under the capital regulation constraints. By introducing the four constraints factors regulation effort level (or regulation penalties), deposit competition, capital buffer scale and capital cost building the model from three aspects based on fundamental assumptions such as the banks fulfill the asset liability equation, government implicit insurance, getting the biggest profit:(1) build the model of no capital regulation constraints on banks risk-taking behavior to get the optimal risk-taking level and social optimal risk-taking level;(2) base on Van den Heuvel(2002)two periods static models, under the implicit insurance system(Yilmaz&Muslumov,2008), separately introduce regulation effort level(Matutes&Vives,2004)and perfect deposit competition which means the same interest rate of the two banks, then to get banks optimal risk-taking level and analyze the statical mechanism how capital regulation constraints on banks risk-taking behavior;(3) we introduced capital buffer scale, regulation penalties(Tanaka&Misa,2002) and cost of capital to get the solution of the balance mechanism of banks optimal risk-taking and credit decisions to cover the single path capital regulation constraints on banks risk-taking behavior, from the regulation level and bank itself (competition status, capital scale and cost)two aspects the effective mechanism to inhibit risk-taking behavior, which is meaningful to regulation reform and bank reform.Thirdly, analyze the dynamic mechanism of capital regulation constraints on banks risk-taking behavior to cover dynamic game mechanism the strategy choice of capital regulation authority and banks risk. By introducing the three constraints factors regulation penalties, market discipline cost and capital adjustment cost(determined by capital buffer and capital cost), respectively using bank risk-taking behavior and regulation strategy of signal game analysis method, indicate that in separation equilibrium whether reached minimum capital regulation standard can become passing bank risk-taking level of signal passed effect, get that regulation authorities should take strictly regulation on high risk banks, the key conditions for take loose regulation on low risk banks are:(1) weak regulation produced of authorities reputation loss e needs to big enough which makes loose regulation of total cost s1,+e is greater than strictly regulation cost s2;(2) risk premium income of high risk banks irregularities is positive with regulation level and will be more than the cost (including regulation penalties, costs and capital market making cost, etc). Using evolutionary game to analyze the dynamic game and learn from each other process between banks and regulators. We get that the conditions of capital regulation constraints can effective lower the banks risk-taking behavior are there exist bankrupt risk, enhancing regulation level and market discipline effects which extend the static analysis to dynamic analysis making up for the insufficient previous domestic static study on the mechanism.Finally, empirical analyze the capital regulation constraints and the dynamic effects of banks risk-taking behavior based the above research. We use19banks and29banks data from2002to2011in Stata:(1)Using3SLS to build simultaneous equations to introduce bankrupt risk indicator Z-score and regulation pressure indicators (super amplitude method and probability method) to analyze the relationship between the dynamic adjustment of bank capital and risk under the pressure of capital regulation constraints. The connected effect between dynamic adjustment of bank capital and risk has asymmetric influence:higher capital buffer banks only have one adjust way path which from capital to risk; and lower capital buffer banks have bi-directional paths exist and also reduce the risk more notable. Market discipline and bank competition degree are negative with banks risk-taking level. At the same time, verify capital discipline is negative with banks risk-taking behavior under the condition of bankruptcy risk. Meanwhile, capital regulation constraints can inhibit bank risk-taking behavior and more effective on lower buffer banks.(2) We use GMM building dynamic equations respectively from full samples and joint-stock banks, while2004and2007as two boundaries points to empirical test Chinese banks capital regulation constraints on banks credit scale dynamic continuous specialty creating indirect effect to banks risk-taking behavior:the lower the bank’s capital adequate ratio, the higher credit risk (bad loan ratio) of last term, the more pressure will suffer. This will help to the interpretation of China’s reality.