The Actual Control Of Commercial Bank And Risk-taking Behavior

The capital adequacy control holds banks’capital level and reduces their risk through establishing capital adequacy ratio. Since the "International Convergence of Capital Measurement and Capital Standards" in1988, many countries have reference to the method so as to maintain the stability of financial industry. However, from the beginning, whether and how capital adequacy ratio influence the banks’capital and risk taking behavior had been the focus of the debate. Most researchers analyze the banks’behavior from the views such as agency problem, different environment, incomplete market, motivation of loan quality management and so on. This paper will try to research from the point of actual controllers which can absolutely affect commercial banks’choice between risks of different level.The article discusses the risk taking behavior of banking system mainly from the view of ownership structure and internal controller. This paper firstly introduces some theoretical analysis on the point, such as distortion effect of deposit insurance regime. On the basis of the introduction of theoretical analysis paper, this paper put forward from the view of the corporate governance, which is a new method of research on this problem.Second, according to the existing study and the special condition of China, such as implicit deposit insurance, competition in financial system, the paper construct a theoretical model to analysis. The results of the theoretical model are:from the commercial banks’ internal governance structure, agency problem widely exist between depositors and banks, between stock-holders and managers, and between regulators and banks under the special condition of implicit deposit insurance. At the same time, depositors in China do not have the motivation to participate in the bank supervision, which causes the tendency of banks to engage in riskier investment projects. Facing the increase of capital adequacy ratio, shareholder controlled banks will reduce risk taking behavior, manager controlled banks will add more risk of investment in order for private profits, and regulator controlled banks will take the most prudential action to minimize the option value of deposit insurance.Again, based on classical literatures and models, this paper empirically analyze the risk taking behavior using the yearly data of Chinese commercial banks from1998to2010and the result shows that:capital adequacy regulation is obviously effective, banks’ risk taking generally declined after the strict capital regulatory in2004; no matter manager controlled or shareholder controlled banks, their capital level and risk taking are negatively related; regulator controlled banks’risk do not change obviously with the change of capital level.Finally, combining the theoretical and empirical analysis and the results, this paper provide some political suggestions:1) insist on capital adequacy ratio regulation to reduce the risk level of banking system;2) pay attention to the role of bank governance structure in the implementation of capital regulation;3) construct explicit deposit insurance system;4) construct perfect market mechanism to constraint bank behavior in the long run, but use political intervention in short-term.