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The Basel Accord And The Management Of Capital Adequacy Ratio Of China's Banks

Posted on:2005-12-16Degree:MasterType:Thesis
Country:ChinaCandidate:W F WangFull Text:PDF
GTID:2156360122499155Subject:Finance
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From the capital adequacy ratio (CAR) of internationally active banks could not be less than 8% required by the Basel Accord in 1988, to the Third Consultative Paper of New Basel Accord Framework published in May, 2003, the management of CAR has passed through more than ten years. The implement of the Basel Accord and the corresponding rules has been playing a very important role in international banking supervision, in which CAR is an essential factor.However, due to various historical reasons of state-owned commercial bank system, the management of CAR has not been in a good condition, and CAR of state-owned commercial banks keeps at a low level, far away from the requirement of 8%. With the quickening of China's opening after the entry of WTO, the opening of bank industry will also expand. The competition from foreign banks will be a great challenge for domestic banks since the bank system has not been so complete yet.This paper starts with the basic content of the Basel Accord, introduces the rules focusing on CAR, and analyzes the main problems existing in the management of CAR in China. Based on the study results of domestic and foreign scholars, this paper analyzes the effects of CAR on bank profits and loans, and finds a region of CAR which maximizes the bank profits and loans, and fits the practical situation of China according to the computing results of equations. After assessing the analysis results, this paper brings forward some suggestions on how to improve the management of CAR in China.This paper consists of five chapters.The first chapter expatiates on the idea of selecting topic and study methodology as well as the whole structure. Relevant references of domestic and foreign scholars are reviewed.The second chapter first introduces the definition and meaning of bank capital and CAR, then briefly introduces the changing process and main content of the Basel Accord, and describes the principal characters and weaknesses of the old Basel Accord as well as the new one.The third chapter analyzes the status quo and problems in the management of CAR in China. CAR being quite low level, there are some problems existing in the management of CAR. Firstly, due to small possibility of fiscal complement, low profit of business, overburdened tax and so on, the capital recruitment channels of state-owned commercial banks are not smooth enough, which makes a great difference between the CAR level and the stipulation of 8% in Basel Accord. Secondly, the structure of capitalis too simple. Almost all of the capital is core capital and there is nearly no supplementary capital, which shows that state-owned banks ignore the management of CAR, and the capital's function of risk precaution is not fulfilled. Thirdly, since the new Basel Accord is a unified standard internationally, there could be some problems with China in adoption since China is still a developing country with an immature banking system. Finally, being no mature credit rating system in China, the external rating approach and IRB (internal rating basis) approach mentioned in the new Basel Accord could not be fully realized yet.The fourth chapter analyzes the effect of CAR on bank profits and loans. Firstly, according to the estimate data, we analyzes the effect of CAR on bank profits, and discover that the empirical regression equation is Cubic, which means that the effect of CAR on bank profits is not a simple positive or negative correlation. Instead, there is a region. Secondly, after analyzing the effect of CAR on loans, it is discovered that the empirical regression equation is Qua, and there is also a region instead of simple positive or negative correlation. Combining the figures of the two equations together, we can find that there is a region of CAR between the extremes, in which the net return on equity and loans with an increasing trend, that is, the net return on equity and loans could reach a comparatively high level. Moreover, we find that according to present practical situation of China, the decrease of bank profits could be...
Keywords/Search Tags:Basel Accord, Capital Adequacy Ratio, State-owned banks
PDF Full Text Request
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