China's City Commercial Banks Optimal Capital Structure

At present, optimizing capital structure and improving governancemechanism can play core effect on upgrading Chinese commercial banks'management levels. Bank's function is mostly to deal with finance risk.Bank capital's function is to absorb the un-expected lose in the courseof managing finance risk. The bank's multi-correlate entities havedifferent viewpoints about bank capital definition and structure, thesedue to multi-correlate entities have different desires to bank'sdevelopment. Therefore bank will have to consider and balancemulti-correlate entities' different benefit at the time of choosing andimplementing optimal capital structure.Chinese city commercial banks wholly offer finance service for smalland middle enterprises. At the same time they play an important role inboosting district economic development. This paper mainly studies citycommercial banks' optimal capital structure in order to enhance theircompetence of management risk and market competition.This paper analyses city banks' optimal capital structure from twodimensionalities:Considering some restriction conditions, the first dimensionalitystudies the optimal state about city commercial banks' shareholderstructure and share-ratio structure. These restriction conditions includeshareholder's control efficiency, correlative risk level, management riskability, increase capital competence, safeguard the benefit of depositor,etc. I) This paper brings forward the city commercial banks' optimalshareholder structure: The local government should be main but not theholding shareholder;some domestic finance organization with more perfectcorporation governance should be holding shareholder;the foreign financeand non-finance organizations or some domestic non-finance organizationswith more perfect corporation governance should be main shareholders, butnot fit for holding shareholders;bank's managers and employees shouldbe main shareholders, not the holding shareholders;in the future, a partof stocks come into the market by direct or indirect methods, some stockswill be held by public and other investors. II) This paper put forward thecity commercial banks' optimal share-ratio structure by comparing theefficiency of centralization and decentralization common stock structure.The most shareholder holding-ratio should be intervenient absolutemajority and absolute minority. In addition, some city commercial bankswith bigger scale and higher management level should adopt more dispersivecommon stock structure.The second dimensionality studies the optimal amount and statestructure of city commercial banks' capital considering some restrictionconditions, These restriction conditions include capital amountcontinuously accord with the need of asset scale increase, the minimumcapital cost, the difficult degree of issuing capitalizable tools, etc.Moreover, by analyzing city commercial banks' management and capitalstatus, and the restriction condition of bank capital scheme, this paperputs forward a stratagem step to come true the optimal state of capitalamount and capital category structure. First, the city commercial banksshould take full advantage of local governments to deal with the forepassedrisk lose;secondly, extend capital through ordinary shares financing,reform shareholder structure, improve corporation governance, enhance theability of management risk;thirdly, enlarge scale within measure, enhancethe profitability;at last, make use of the sub-equity instruments to raisecapital, break area restriction to invest bank capital.Chinese city commercial banks have distinct regional and scalecharacter. This paper studies synthetically the capital structure problemof city commercial banks from various angle of view. On one hand this paperbrings forward the optimal structure about city commercial banks'ownership and share-ratio, on the other hand put forwards the optimalcapital amount and capital category structure. At the same time, this paperdraws a stratagem step for Chinese commercial banks to come true the optimalcapital amount and capital category structure.