Research Basel â…¢ Countercyclical Capital Buffer Mechanism

The U.S. subprime mortgage crisis in2008exposed the vulnerability of financialand its regulatory system.Governments, enterprises have raised a variety of policiesand management methods based on routine adjustments,the backward managementthinking and strategy are attracting more and more attention.Counter-cyclemanagement become an important issue that must be considered.Basel Committee hasissued a series of documents since its inception,and formed the risk managementframework.Basel III is the result of a global financial crisis, international bankingsupervision reform,its implementation will have a profound impact on theinternational financial market and the world economy.During the economicglobalization today, it also has a significant impact on the China’s bankingindustry.Building the Countercyclical capital framework is necessary for China’sbanking industry to actively respond to the new international financialenvironment.Thus, in the post-crisis era, how to strengthen counter-cyclical capitalregulatory, control the risk of commercial banks to make sure that the banks cantimely release risks in the period of economic downturn,making the macroeconomicperformance more stable is urgent and important for commercial bank reform inChina.This paper follows the idea of combining theoretical economics andeconometrics,integrates the use of normative analysis,empirical analysis,literatureanalysis and logical analysis. First of all,this paper sort the related research ondomestic and foreign counter-cyclical capital policy, and give comments on theseresearch.Secondly,this paper elaborates the international rules and practices ofcountercyclical capital buffer policy,summarizes experience of foreigncounter-cyclical capital regulation,also proposes counter-cyclical capital regulatoryinstruments as well as the need to implement counter-cyclical capital buffer.Again, inthis paper, China’s cyclical capital buffers were studied, evidence indicates that Chinahas a counter-cyclical capital buffers, but mostly the result of capital replenishmentpolicy. Then in accordance with the Basel III,this paper selected four differentindicators of the credit scale, regarding the macroeconomic climate index as abenchmark, using the KL information laws for comparison and proved that the foreigncurrency credit metrics better reflect our economic cycle changes.Then bufferwithdrawing compared with the actual buffer in China Banking industry.Next, this article addresses the further disgussion of building Countercycle capital buffermechanism as well as providing appropriate policy recommendations on the futureimplementations. Countercyclical capital buffer mechanism is raised for in thefinancial crisis raised pro-cyclical in the crisis,this paper analyses China’s bankingcyclical capital buffer,and then propose the necessity to the implementcounter-cyclical capital buffer. The buffer withdrawn compared with the actual bufferin China Banking industry is basically the same which further indicates thatcounter-cyclical capital buffer mechanism to enhance China’s bankingcounter-cyclical effect.The research of counter-cyclical capital buffer is kind oftimeliness, and important for the improvement of our counter-cyclicalmacro-prudential framework.