The Research On The Countercyclical Policy Of Capital Regulation In The Banking Of China

After global financial crisis unveiled the internal instability of financial system, to rethink the financial system and regulation policy is considered necessary. Regulators put attention to supervise individual agency while face failure of control systematic risk. Regulators are agree in principle that to establish a international/nation level system of prudent macro management, which will linked up to system of prudent micro management, is a major trend in post-crisis era.Due to the pro-cyclical characteristic of financial system, risk model and capital regulation amplifying the cycle, financial crisis is more likely to occur. So how to deal with the pro-cyclical characteristic of financial system have became important. Some scholars argued, therefore, introduce counter-cyclical policy and mechanism will be a effect plan.This essay will analyzing Chinese commercial bank’s pro-cyclical capital adequacy rate empirically, propose primary suggestion of Chinese banking industry country-cyclical policy under Basel Ⅲ framework via the analysis of capital regulation pro-cyclical characteristic. Country-cyclical policy is a widespread concerned after Basel Ⅲ, so research in that area is quite forward-looking and fundamental.After listed existed literature, in capital regulation pro-cyclical perspective, this essay introduced Basel Ⅰ and Basel Ⅱ and capital regulation mechanism under the former two agreements, e.g. pro-cyclical effect from bank capital portfolio changed in different economical stage under fix risk weight in1988; under new capital agreement, pro-cyclical effect is from rating organization; pro-cyclical effect of internal rating is affected by risk parametric (PD, LGD, EAD, M);.the analysis of pro-cyclical effect from capital requirement which is impacted by trading account, market systematic risk and operation risk. Then process empirical analysis of capital adequacy rate pro-cyclical characteristic based on12banks’quarterly data from2003to2011. The result showed positive correlation between capital adequacy rate and business cycle.To avoid the pro-cyclical problem of Basel Ⅱ, Basel committee issued counter-cyclical capital framework which require bank regulators have counter-cyclical capital provision. Second half of this essay analyzed details in counter-cyclical capital framework including how to take counter-cyclical capital in boom and how to release counter-cyclical capital in bust. Financial and macro-economical data supported credit balance/GDP indicator shows Basel counter-cyclical capital framework is applicable in China. However, futher effects need to be tested in the long run. Some primary suggestions of counter-cycle policy,such as to combine micro/macro supervision, to research in counter-cyclical policy tools, to establish risk evaluation&prewarning system, have been proposed in the end of the essay...