Impacts Of Capital Adequacy Regulation On Bank Credit And Economic Growth In China

This paper is inspired by the fact that capital adequacy regulation has brought forth credit crush and weakened economic growth in USA and Japan. Following the transmission mechanism of "Capital Adequacy Regulation--Bank Credit--Economic Growth", I try to analyze the impact of capital adequacy regulation in China after introduced Basel I.At first, I demonstrate the transmission mechanism of capital adequacy regulation theoretically. In the first step, it works in two ways:the direct effect which alters bank lending behaviors and monetary policy effect. In the second step, capital adequacy regulation will produce an indirect impact on economic growth via asymmetric effects of monetary policy, credit crush and capital regulation procyclicality.Next, I will examine the relationships among capital adequacy ratio, bank credit, economic growth using a panel data of 4 State-owned banks and 8 Joint-stock commercial banks from 2000 to 2008. I focus on comparing the banks performance differences when the "The Management Method of Commercial Bank Capital Adequacy Ratio" (2004) takes effect in China. Then, I continue to regress the impact of capital adequacy regulation on economic growth by means of Cointegration Method and Granger Causality Test.Finally, I come to a conclusion and furthermore, I will propose some policy suggestions to avoid the adverse effect on bank credit and economic growth when strengthening the capital adequacy regulation.