Capital Adequacy Ratio And The Empirical Relationship Between The Risk Of Commercial Banks In China

Since the establishment of the comprehensive risk management system with capital regulation as the core in Basel Capital Accord, the study of the relationship between the capital adequacy regulation and commercial banks' risk in theoretical circles has gone through a significant development. It is believed by most western scholars that the capital adequacy regulation has a positive impact both on the rising of capital adequacy level and the restriction of risk-taking in commercial banks. Therefore, it is very important to analyze the relationship between the capital adequacy ratio and the risk of domestic commercial bank, which will fiirther benefit the risk management of domestic commercial banks and the formulation of capital regulation in conformity with the national conditions.With the issuing and enacting of Measures for the Management of Capital Adequacy Ratios of Commercial Banks in 2004 as the background, this thesis analyzes the capital adequacy ratio of 13 sample commercial banks to find out whether it has been raised markedly after the issuing and enacting of the measures, so as to prove whether the issuing and enacting of the new measures has prompted the standardization progress of domestic commercial banks objectively. The results show that the requirement of capital adequacy ratio did promote the standardization progress of those commercial banks which were under regulation standard. However, it's also showed that the capital adequacy ratio level of those commercial banks which have already reached the standard has not been raised again.The key study of this thesis lies in the research on the impact of capital adequacy ratio on commercial banks' risk, which takes with the annual panel data of 12 representative commercial banks in 2002-2008 as the research sample. In the control of internal and external factors, the relations between the capital adequacy ratio and the risks are studied, which refer to the risk-taking measured by the ratio of risk-weighted assets to total assets and the bankruptcy risk measured by Z-score. Also, the sample banks are divided into state-owned banks and non state-owned banks in two sub-samples for a robust test. The conclusion is that a highly concerned negative correlation relationship is showed between the capital adequacy ratio and the risk-taking and the bankruptcy risk of those non state-owned banks and the entire domestic commercial banking system, but no statistical remarkable effect has been found on the risk-taking of state-owned commercial banks.