Credit Pro-cyclical Study Of Banking Capital Constraints

Capital regulation is the core of banking supervision, it specifies the minimumcapital requirement of commercial banks, enhances the ability of commercial banks toresist the risk. It is the prompt effective regulation measures for the sustainabledevelopment of commercial banks. However, with the outbreak of the financial crisis,the role of Basel is questioned by all walks of life. At the same time, some peopleargue that the pro-cyclicality elements in the existing capital requirement frameworkcause the crisis to some extent. In the post-crisis era, international scholars andgovernments began to re-examine the pro-cyclicality of banks, and reach a consensuson "counter-cyclical macro-prudential regulation". In2009China officially joined theBasel committee, so the research of pro-cyclicality on China’s commercial bank andthe measures on feasible regulatory are helpful in formulating the internationalbanking regulation standards, which better safeguard the interests of China’s bankingindustry.At the beginning of the article, it reviews the history of Basel agreement. Thissection focuses on analyzing the defects of Basel Ⅱand the improvements of BaselⅢ, which lays a theoretical basis for study on current banking supervision in China.And then this article discusses the reasons of pro-cyclicality. It argues that capitalrequirements, credit rating, loan loss provision system, fair accounting system led tothe pro-cyclicality and analyze the four incentives in detail. In order to prove therelationship between the bank credit activities and Business Cycle, we select the paneldata of14listed commercial banks in China in2000-2012to make model and get theresult to show the conclusion. Based on the study above, this article presents somereasonable suggestions on the mitigations of pro-cyclicality.