Study On Procyclicality Of Chinese Banking

For a long time, most of traditional theories on Business Cycle held the view of Money Neutrality. They thought that the factors of finance would not influence directly on investment and production in a society, so the factors of finance couldn't be the direct reasons of Business Cycle. However, with the lasting development of global economy, more and more economists realize the effect of factors of finance upon Business Cycle. And the most typical model in this field is Financial Business Cycle which was pointed out by Bernanke in 20C80s. They insisted the investors'cost of financing would make opposite change with Business Cycle, and the change of conditions on financing would act on the production and investment in a society, so the level of fluctuation of Business Cycle will aggravate. Recently, Subprime Crisis happened to America shows the effect of factors of finance on economic recession and it becomes a typical example. As the unreasonable credits in American Banking were continued broaden without stable foundation, so many commercial banks would bear huge amount loss even bankrupt, and like this, American economy goes into recession.According to this, this article chooses Chinese Banking as a study target to analyze Procyclicality. And Procyclicality on banking means the credits from commercial would promote the form of Business Cycle and even aggravate fluctuation level. In order to study the Procyclicality of Chinese Banking completely, at the beginning of this article, it will analyses those concerned theories about the mutual influences between Banking and Business Cycle, such as Disaster Short-Sight, Herd Effect and Institutional Memory Hypothesis. And then we will emphasis on the effect from the measures of Chinese Banking regulator. In order to prove the true relationship between the credit activity from Banking and Business Cycle, we use the data of growth rate of GDP and growth rate of credit to make model and get the result to show the conclusion. At last, based on the study above, this article would present some reasonable suggestions on the mitigations of Procyclicality, and there are three parts:from the views of commercial banks. People's bank of China and Chinese Banking Regulator. These suggestion are aimed to make commercial banks could operate steady and the whole economy in our country develop steady.