Capital Under The Supervision Of Commercial Banks Behavior Analysis

This paper examines the adjustments of our commercial banks' capital level and asset portfolio risk under the capital adequacy requirement regulation. We try to answer two key questions: Does regulatory pressure induce our commercial banks to increase their capital? Does strengthening of capital requirements induce them to increase or decrease their portfolio risk?Based on classical literature and model, in view of 12 Chinese commercial banks' panel data from 2000-2007, we estimate the relationship between capital requirement regulation and commercial banks' behavior. The conclusion indicates: under capital adequacy regulation, banks with adequate capital still rise their capital level, however, they don't reduce their portfolio risk significantly; banks with inadequate capital reduce their portfolio risk, however, they don't increase their capital level. This paper does contribution to the empirical research of this issue in our country. Moreover, the empirical results have significance on how to better implement capital regulation.