Study Of Subordinated Debt Issue And Development Of China's Commercial Banks

Considering the standard of old and new Basel commitment, China Banking Regulatory Commission (CBRC) issued The Measures on Rate on Capital Adequacy of Commercial Banks on February, 27th, 2004, regulating that the deadline of conforming to the standard is January 1st, 2007. In the transition period, commercial banks that haven't been in line with the standard must set down the feasible plan for the supplement of capital. At the same time, CBRC will monitor that how the plan is carrying out and take corresponding supervising measures.Now there exists comparatively great distance about rate on capital adequacy from Basel Agreement and Measures. Besides, capital structure is singular; the ratio of supplementary capital is low. Subordinated debt can be counted as Bank supplementary capital, so its rise can increase rate on capital adequacy and can go a long way to meet the requirement. With no other financing alternatives, commercial banks may make good use of the issuance of subordinated debt. It is meaningful for the development of finance system and economy environment. So, related department published The Notice of Numbering Subordinated Debt as Supplementary Capital and The Management Measures on Commercial Bank issuing Subordinated Debt. It goes a long way to the increase of rate on capital adequacy and to multiple ways of supplementing capital.Industrial Bank issued 3 billion subordinated debts at the end of 2003. It became the first bank which supplementing capital by the use of subordinated debt. Then many commercial banks adopted the same solutions. The use of subordinated debt became a fashion. But comparing with foreign merchant banks, what China merchant banks did is only at preliminary stage and still has many problems. So it's worth to learn from the excellent practice implemented by foreign commercial banks.The first part introduces some background behind the issuance of subordinated...