The Empirical Research Of Bank's Capital Buffer And Risk Adjustment Decision-making

The capital adequacy ratio of a commercial bank reflects the extent of bank bearing losses with its own capital before the depositors and creditors suffer a loss with regard to their assets. This indicator is specified in order to damp the excessive expansion of risks, protect the interests of depositors and other creditors and guarantee the normal operation and development of banks and other financial institutions. Generally speaking, the financial authorities of all nations have certain control and regulations on the capital adequacy ratio of commercial banks so as to monitor the banks'ability to resist risks. The financial management authority of our nation also uses the Basel Agreement for reference and takes the capital adequacy ratio as an important means of to control and regulate the banks.For the researches on capital adequacy regulation on bank risks, the scholars at home and abroad have different opinions. But most scholars agree that the capital adequacy regulation can improve the bank's capital adequacy level and reduce the bank's risk-taking behaviors. Since the situation of China is special and the financial industry starts development relatively late, further studies and investigations have to be carried out to discuss the advantages and disadvantages of the introduction of Basel Agreement.In order to improve the bank's ability to against risks, our Financial regulatory authorities comprehensive reference of the Basel Accord, and to bank capital adequacy ratio as an important means of control. Based on the dynamic characteristics of bank's continuing operations, this article Build an unbalanced panel of China's commercial bank balance-sheet data from 2000 to 2009, we used the Generalized Method of Moments to examine the relationship between short-term capital buffer and portfolio risk adjustments. Our estimations show that the relationship between capital and risk adjustments for well capitalized banks is positive, indicating that they maintain their target level of capital by increasing (decreasing) risk when capital increases (decreases). In contrast, for banks with capital buffers approaching the minimum requirement, the relationship between adjustments in capital and risk are negative. That is, low capital banks either increase their buffers by reducing their risk or gamble for resurrection by taking more risk as a means to rebuild the buffer. Moreover, Our estimations show that the management of short-term adjustments in capital and risk are dependent on the size of the buffer.