Research On The Basel-Ⅱ Procyclicality And It’s Mitigation Mechanism

One important defect of BaselⅡis the procyclicality of Capital Regulation. Compared to the 1988’s old Basel Accord, the most notable feature of the BaselⅡis change of the regulatory capital calculation of risk weights. Under the BaselⅡ, requires bank use credit rating method to define different risk weight for different credit ratings loans. Basel Committee also encourage commercial bank develop internal rating models to measure the risk parameters,and then, according to the requirements of BaselⅡto calculate regulatory capital.these practices of BaselⅡgreatly increased the risk sensitivity of regulatory capital banks. As early as the beginning of the new agreement announced, some scholars suggest that the BaselⅡmay result in a significant procyclicality problem for bank supervision. We should take measures to alleviate the effects of procyclicality, in particular, the regulatory capital procyclicality effect.In 2008 ,financial crisis swept across the world. Academics launched a new round of heated debate on the procyclicality effect of BaselⅡ. At present, Measuring the procyclicality effect and designing mitigation mechanisms are the core issues to solve the procyclicality problem. Through deeply study the BaselⅡ, in this paper, we analyzed Michael B. Gordy’and Rafael Repullo’design on mitigation mechanisms and point their lacks. Based on their work, we substantially improved their mitigation mechanisms, proposed a new mitigation mechanism. this paper also deeply discussed the choosing of smoothing parameter for H-P filter, which Rafael Repullo does not take into account this effect of the smoothing parameter setting. Through deeply study the choosing of smoothing parameter, we found that H-P filter smoothing parameter selection has an important influence on the effect of mitigation mechanisms.In this paper, based on using the China’s Listed companies and macroeconomic data to measure the procyclicality effects of BaselⅡ, empirical analyzed the mitigation mechanism we proposed. The empirical results show that this paper proposed mitigation mechanism can more effectively mitigate the procyclicality of BaselⅡ. Finally, According to the results of this study, this paper proposed some countermeasures todeal with the by the procyclicality effect of BaselⅡ.