Research On Efficiency And Risk Of Capital Instruments In Chinese Commercial Banks

As important institutions in financial market,commercial banks have a special status in the national economy.In the Chinese financial system,which is dominated by commercial banks,banking has been the core of the financial industry operation of our country,and capital is the core of commercial bank management.Bank capital,which is regarded as a buffer of undertaking uncertain loss in the future and playing the role of protecting depositors,is highly concerned by regulatory authorities,rating agencies and commercial banks.The importance of bank capital has been fully reflected.From Basel Committee issued Unified capital measurement and capital standards of international agreements in 1998 to the latest revision process of Basel Agreement in 2013,capital regulation of commercial banks was having much attention from international banking all the time.And capital supplement of commercial banks is gaining more and more attention.Basel Agreement IIIenhanced the requirement of loss absorption capacity of capital instruments,because of the problems of capital instruments of commercial banks exposed by the financial crisis in 2008 that too complex capital instruments of large international commercial banks severely weakened loss absorption capacity of capital and aggravated the negative impact of the crisis.As the fast increasing of risk-weighted asset and much capital consumption,resulted in assets increasing quickly,capital supplement problem of China’s banking sector is loom large.From January 1,2013 Measures for the capital management of commercial banks(for Trial Implementation),which has a sufficient reference to Basel Agreement III and redefines the eligibility criteria of capital instruments and definition of capital,started to impose more stringent capital supervision on banking in China,also moderately improved loss absorption ability of capital instruments.With being subject to latest domestic and foreign regulatory capital requirements,research of capital instruments is not only helpful for China’s commercial banks to actively adapting to regulatory standards,but also realizing maximization of marketing value by capital structure optimization and supporting banks to achieve strategic development goals.Research of efficiency and risk problems in capital instruments of commercial banks has important meaning.Firstly,it is realistic demand of improvement of capital adequacy ratio of commercial banks and international competitiveness.Secondly,it is helpful for commercial banks to optimize capital structure,improve corporate governance and build sustainable and market-oriented supplementation mechanism of the capital.Thirdly,it can enhance loss absorption abilityof capital instruments,exert its indirect influence on bank profitability and ability to provide credit and identify systematic risk raised by issuing capital instruments.Fourthly,it can be good for stabilizing capital market operation in our country and reforming financial system with comparison of operation situation of domestic and foreign capital instruments and research of innovation on capital instruments of commercial banks.The article,which focuses on 16 listed banks in China,makes in-depth study on the role that capital instruments play of banking operation,not only analyses the action mechanism of capital supplement theoretically,but also combined with macro and micro data for validation.Research of economic benefit and social benefit of banks’ capital instruments at the micro level founded that action effects of common equity capital instrument,Preference Shares capital instrument,and bond capital instrument have their own focus.Their effects can’t take account of economic benefit and social benefit at the same time.On the macro level,this paper analyses influence of supplementary capital to systemic risk of the banking sector through different ways of recapitalization.The article uses quantile regression to obtain the contribution of each bank systemic risk with asymmetric CoVaR model.Further more,the article analysis the relationship between the contribution of systemic risk among banks and the secondary capital bonds issued by banks,issuance of common shares and preferred shares.The article finds that issuing bond capital instruments significantly reduce systemic risk and preferred share capital instruments can also reduce systemic risk,but the effect of issuance of preferred stock to reduce systemic risk is weaker and issuance of common shares increases systemic risk instead.Finally,the article,which designed innovative mechanisms of capital instruments from perspective of legal environment,regulatory environmentand banks themselves,proposes some policy recommendations about developing capital instruments.