Empirical Research On Effects Of Capital Adequacy Ratio On Credit Crunch In China

The development of the banking has very important effect on economy of a country, Basel Committee issued "Basel Accord" in 1988 which stipulated international standard as to bank capital in order to ensure the security of banking and make the economy operate steadily. As the developed countries, U.S.A. and Japan had taken the lead in implementing" agreement of Basel". Unfortunately, the credit scale shrank in the two countries in the 1990s, which led to the economic recession. A large number of scholars studied the phenomenon by research analysis and real examples, only found that although rigid banking capital standard guaranteed the security of the banking; it forced banks of U.S.A. and Japan to reduce credit supplement scale. It is inevitable to have adverse effects on Macro-economy. Increasingly, people paid attention to the credit crunch that had been caused by banking capital supervision standard, and took measures to lighten the negative effects on Macro-economy.The first part describes the background and meaning of banking capital supervision and reviews some domestic and foreign references about influence of banking capital supervision on loan supplement. Many references indicated that banking capital supervision brought credit crunch and influenced the economy growth. Following, Part two analyzes credit crunch in theory. Banking capital supervision will lead to credit crunch no matter from definition or from monetary policy conducting channels. The third part applies mathematics and physics model to verify credit crunch caused by banking capital supervision. Part four uses economic data during 1999-2009 to analyze bank credit behaviors in our country when we were faced banking capital supervision. Results show that our country didn't experience credit crunch during 1999-2003 mainly because of extensive economic growth mode, indirect financing structure depending on banks, the system of state-run bank and defects of financing supervisory system; Banks' capital in our country has improved obviously, capital adequacy ratio rose by a large margin, far higher than Basel 8% that Committee required after our country began to implement banking capital supervision standard strictly in 2004. So banking capital supervision didn't make banks cut down loan scale during 2004-2009. But Cross Section Model indicates obvious credit crunch phenomenon appeared in 2005.American secondary debt crisis swept across the whole world in 2007, from then on the Basel Committee has deeply made a thorough review on the defects of banking capital supervision system.Besides the Basel Committee carries on reforms to the banking capital supervision system. G20 Seoul summit has passed " Basel AccordⅢ" smoothly. It requires the key capital adequacy ratio should rise from 4% to 6% and set up a kind of protection capital item of 2.5% and excess capital against economy cycle between 0 to 2.5%.This will inhibit loan from expanding excessively to deal with unexpected loss and make sure the banking operate safely. At the pressure of "Basel AccordⅢ", part five propose three suggestions to the detailed conditions of our country:(1)Supervise the commercial bank to set up and improve the dynamic management mechanism of the banking capital and make the capital adequacy ratio keep within a relatively stable range. (2)Implement the elastic capital proportion management. (3)Change the profit mode of commercial bank.