Research On Weakening The Pro-cyclical Effect Of Domestic Commercial Banks

In 2007 the U.S. subprime mortgage crisis evolved into a global financial crisis, which caused a huge impact on financial system and real economy of many countries in the world. This made the world's financial system fully aware of the necessity and urgency of reforming the existing financial system and strengthening the supervision. Among them, an important principle and direction of reform is to curb the excessive pro-cyclicality of the financial system especially the bank behavior.We can explain the pro-cyclical of commercial Bank from two aspects of the credit-cycle theory and bank capital regulation theory. During economic upswings, commercial bank credit grows too fast, many projects that are bad or of negative net worth can obtain financing, and after the expiration the default phenomenon and bad loans appear, this is called the first kind of wrong credit policy. And during economic recession, the commercial banks are more cautious when they provide loans, reduce credit scale, even some good projects are also refused, which belongs to the second kind wrong credit policy. So many errors in decision making of the commercial banks are made during the period of economic growth, the risk is accumulated, until the recession the risk outbreak. Disaster myopia, herd behavior, agency problems, memory inertia hypothesis explain the phenomenon from different aspects. At the same time, a large number of studies show that, bank capital regulation will lead to more serious pro-cyclicality of credit supply. During the period of economic recession, the commercial banks extract more risk provision and write off more bad debts, the commercial bank capital requirements rise, the commercial banks keep higher loss provision level, which reduce the ability of the bank loan supply and capital expansion, will accelerate the economic decline and delay the economic recovery. In contrast, in the period of economic prosperity, the whole bank asset risk drops, capital supervision drops, the commercial banks have the ability and the power of credit expansion, which will accelerate the economic trend.The pro-cyclicality of the commercial banks has certain rationality, from the commercial bank's profit goal, the pro-cyclicality is a nature of the commercial banks, but the excessive pro-cyclicality makes macroeconomic cycle fluctuation too large, is not conducive to the development of the commercial banks themselves, weakens the effectiveness of monetary policy, at the same time, may cause the financial crisis, we must admit the pro-cyclicality of the commercial banks basis, and prevent the excessive pro-cyclicality.This paper selected the data of growth rate of GDP of China and commercial bank credit growth rate from 1991 to 2010, analyzed in detail the credit behavior of the commercial banks and the macroeconomic fluctuations of China, and discovered the economic fluctuation in China on the whole track and bank credit fluctuation trajectories converge, the pro-cyclicality of our country commercial banks is evident. In order to prevent the excessive pro-cyclicality of the commercial Banks in our country, this article took the behaviors and policies of the commercial banks, the regulatory authorities and the central bank which may lead to the pro-cyclicality into account, put forward the countermeasures. This paper advocated that the commercial banks apply the across cycle model, adjust credit management system; the regulatory authorities should establish a forward dynamic loan loss provision system, keep pace with the times, actively refer to" Basel Protocol III" to strengthen supervision of commercial banks; The central bank should improve the monetary policy conduction mechanism, accelerate the process of market interest rate mechanism, improve the operation efficiency of the monetary policy tool, improve the transparency of monetary policy, improve the independence of the central bank, strengthen the effective exchange of information and policy coordination between the regulators and the central bank. Use these strategies comprehensively, in order to alleviate the excessive pro-cyclicality effect of the commercial banks.