Capital Adequacy Regulation And Banking Supervision In China

The international financial supervision practice these years has shown that risk supervision, with the core and emphasis on capital adequacy regulation, has become the inevitable tendency for banking supervision, and Basel Accord, the international standard of capital adequacy regulation, has been widely accepted by most countries in the world. Since China is a member country of Basel Accord, capital adequacy requirements has been introduced into the banking supervision framework since 1996. However, it is just regarded as a referenced index for stipulation supervision but not an instrument for risk supervision, thus has not been taken seriously at most moments. Based on the analysis on the status of capital adequacy of banking industry in China, a modified simultaneous equations model will be built to analyze the capital behavior of Chinese commercial banks, and the results show that strengthen of external restrain has some positive impact on the decrease of assets risk for Chinese commercial banks. The analysis on the banking industry of China indicates that Regulation Governing Capital Adequacy of Commercial Banks stipulated by China Banking Regulation Committee will play an important role to encourage commercial banks to strengthen risk management, but there is still some deficiency, such as the standard of capital adequacy. What' more, there are some limitations for internal models to serve as the development direction for capital adequacy regulation in China. Finally, based on the main models of capital adequacy regulation, the paper points out that an incentive model should be adopted in China, then probes into the implementation of general supervision model in China based on the Pre-commitment Approach.