Bank Risk-taking Under Capital Adequacy Regulation

In1970s, with the internationalization of banking business, innovation offinancial instruments and the development of sheet business, banking supervision hasbeen seriously weakened, while the risk borne by commercial banks has greatlyincreased. In order to reduce the commercial banks operating excessive risk-takingbehavior, and strengthen the international banking system sound and keep stabledevelopment, the Basel Committee developed the Basel Accord in1988. Asinternational capital adequacy regulation uniform standards, Basel Accord is the worldaccepted by the banking regulator or as a reference standard for banking regulation.Although the Basel Accord makes the banking system at a certain level of capital,whether the capital adequacy regulation can reduce the risk of commercial banksshould explore the theory and practice test.Foreign scholars have made a lot of researches on Basel Accord, we can see thatscholars in our country are increasingly concerned about the capital adequacyregulatory issues, but their research focused on the description and analysis of theframework of Basel Accord and the capital adequacy ratio of domestic commercialbanks, fewer made a research on the relationship of capital regulation and thebehavior of commercial banks. This paper for the capital adequacy regulation oncommercial bank risk behavior primarily to be analyzed from two aspects: First, whycommercial banks will take high-risk business strategy that is why the implementationof the bank capital adequacy regulation; second, it analysis the impact of capitaladequacy regulation on bank risk-taking by dividing the market into high competitionand low competition market according to the degree of competition. In the analysis ofthe first problem, this article captures the inherent characteristics of the bankingindustry, and analysis from three aspects: First. commercial banks are commonlyjoint-stock companies, for limited liability and the existence of asymmetricinformation, managers in Bank’s business processes in moral hazard, that is to takehigh-risk business strategy, in order to obtain higher returns; second, the depositinsurance system itself has adverse incentive effects, the existence of depositinsurance system to reduce not only lead to depositors of banks supervision ofmotivation, also makes the banks will be used in the operation of high-risk businessstrategy; third, banking system has a vulnerability and the risk of infectiouscharacteristics,the bankruptcy of commercial banks will have huge negativeexternalities. From the above analysis we can see that as the profitability for the purpose of thebanks, the bank itself will take high-risk strategy, there is a moral hazard problem, thebank’s bankruptcy would bring huge negative externalities, so need the government tosupervision. Next this paper make an empirical study on the impact of capitaladequacy regulation on bank capital and risk business changes, and found that:First,under the mandatory regulation on capital adequacy constraints, the capital has asignificantly negative influence on risk changes; second, the minimum capitaladequacy regulation cannot effectively improve the bank’s capital level, but canreduce the risk level of commercial banks; third, the increase in asset size will helpbanks adjust their risk; finally, the current risk changes has the same trend with theformer changes.Based on the results of this research, we should further strengthen and improvethe capital adequacy of China’s commercial banks regulation system, and increase thechannels to add banking capital. Finally, this paper analyzes the U.S. subprimemortgage crisis exposed by the banking regulatory lag, and made according to thebasic situation of China’s banking industry to develop in line with the actual situationof China’s banking industry a comprehensive regulatory system to ensure the health ofthe banking sector stability and development.