The Effects On Operation Of China Listed Commercial Banks By Capital Regulation Research

Basel III was published by Basel Committee in2010just6years after Basel II’s born. As a response to this new document, China has developed a new regulation in2011which has already put into effect in2012."Capital rationing" is becoming a hot argument after all these series. Under the special national situation of our country, financing structure is out of balance where indirect financing has taken over for almost75%.As a special subject in the market, China’s bank is bearing the whole weight of that75%which made China’s bank full of danger. Considering the huge network effect of China’s bank,"capital rationing" comes to an inevitable issue. The Article reviews that capital rationing is playing a huge positive role to China’s bank either in regulation issues or as a management tool. However, China’s bank has developed into a dead zone by some reasons which become an obstacle of sustainable development of banking. And this paper mainly discusses how to escape this dead zone, how to enhance the positive effect of capital rationing.The substance of capital rationing is to get specific relations between capital and risks to cover the risky asset by capital to certain extend. A stricter requirement for bank’s capital ration has made by Basel III and the new state’s regulation. On one hand, the capital ration has put forward some financial index such as CAR, liquidity targets, and Leveraged index which will reduce the risk of bank in a huge level. The index of Countercyclical Capital Buffer also builds a line of defense for bank in downlink period. On the other hand, capital ration has made a more refining and reasonable requirement on capital, core capital and Core Tier1capital. It also made a stricter quantitative indicator on CAR. As we can see, the requirement for bank capital is getting more and more mature and we are coming into a new age which has stricter requirements and more mature system. In this new epoch, capital ration will play a more plosive role to the banking industry. And our banks will head for a beautiful and prosperous situation. Under the requirement of capital ration, our bank is earning more and more profits with the risk in the control.We can see the huge effect of capital ration clearly. However, as the requirement becomes stricter, the negative effects has coming up. The operation of our bank has trapped into a strange circle. This paper has made a conclusion that there are3specialties in the operation of banks by analysis of financial index in16listed banks.1. The main reason of the decline of CAR is the speedy extend of credit.2. The main method of CAR making up is the huge external financing.3.The core strength of the speedy extend of bank is directed credits. And under these3specialties, we can see a operating logical by China’s bank:under the huge scale tendency of bank, the capital ration has not proved its own huge optimist effect. The externalization of this logistic is that the banks have trapped into a strange circle which is always circulating in "financing-lending---financing". And this has made China’s bank into an unsustainable development pattern which is not good for China’s banking industry and the whole capital market. The author has made a deeply analyze in order to help China’s bank go into a healthy development. Specifically, the author has found two points which is the key to the strange circle.1.Why do we have to choose financing to raise the CAR.2. Why we have to define credit line as the core business. And the writer thinks the answer for these2questions are also the answers for bank’s strange circle.This paper dips deeply about reasons behind the problems among banking industry:from a macro perspective, our capital market lacks efficiency. With respect to the financing process of the market, indirect financing is still the main tool. According to the records, the financing structure in China is not balanced and reasonable. More than75%are indirect financing while less than15%are direct financing such bonds and stocks. As the main broker for the indirect financing, commercial banks should make loaning as the core banking, in the meanwhile, they also become the main risk taker. All of these lead to the lower CAR. As a market player with a special effect on the market, the banks put more efforts on the loaning business to ensure the state’s improvement on economics. From a micro perspective, this paper concludes the main reasons as follows. First, the listed commercial banks do not have a sustainable management style which puts the capital as the core business. Second, the classifications of the business in banks are not diversified. Third, the risk management system is not matured among the commercial banks. Forth, the commercial banks lack a efficient capital surplus system. To conclude, this paper assumes the reason is the operation culture; banks should change the scale tendency, and then put the risk management into practice.In the end, this paper suggests on how to improve the capital ration. First, the substance of the capital ration should be understood. Second, an operation system whose core is capital management should be established. Third, a higher standard of risk management should be improved. Forth, diversify the business in banks. Fifth, the inner capital surplus system should be improved. Sixth, diversify the channels to financing from outside to lower the financing pressure. Seventh, free the interest should be put into practice.As the market is developing and maturing, the banks are undergoing a reform. The matured banking industry system will be established to ensure the development.