Study On Bank Prudential Regulation Mechanism Under The Financial Innovation Environment

In the history of global financial evolution since 1970s, one of the most outstanding features is the surging financial innovation. The operation of financial innovation has changed the fundamentals of financial supervision, and accordingly requires the revolution of financial supervision institutions. The conventional mode of bank supervision stresses the outside regulation and direct intervention, which demonstrate the government is very afraid of risks occurring in the banking sector and is to curb the accumulation of non-performing loans in banks. However, this mode of bank supervision has undesirably depressed the banks'motivation to adopt financial innovation. Different from the former mode, current financial supervision should keep the balance between and the risks arising in the financial market and the operation efficiency of banks.That is so-called Prudential Regulation, which means through enacting a series of prudential regulation rules, the government will enable the scales and risks of individual bank's asset to match its capacity of risk control. In general, the relevant rules of prudential regulation can be divided into two categories, capital requirement and internal control. Nowadays, both academic and practice unanimously supports the claim that appropriate capital adequacy ratio has positive influence on guiding away the risks of potential losses. However, what are the preconditions of exerting its validity? What effects will the capital requirement impose on the asset and project choice? Such research questions are under hot debate. Based on the principle of financial economics and the method of game theory, this thesis will study the influence of capital requirement on the bank loans choice under implicit deposit insurance institution, and analyze the requisite of effective capital regulation. Regarding some conclusions, empirical evidence will be found to support them.While the financial innovation is thriving, how to implement prudential regulation is also an important research question. The extant literature on this issue doesn't seem very logical and fails to give sound theoretic explanations. This thesis shows that the presence of continuous financial innovation may be one of the driving forces of self-regulation in the Chinese banking sector. In an infinitely repeated game, there exists a class of subgame perfect equilibrium in which the self-regulation bank pursues socially desirable objectives along the equilibrium path to stave off government...