A Study On Credit Clusters Of Commercial Banks In China

The2007U.S. subprime mortgage crisis evolved into a global economic crisis finally, which had a tremendous impact on domestic financial systems and the real economy. Procyclicality effects caused by commercial banks is one of the vital reasons behind the formation of the subprime crisis, the action that main commercial banks took in a crisis was characterized by cyclical operation and behavior modification which sparked heated discussions between academia and regulatory agencies, and promoted the need to re-examine the financial system in particular, procyclicality of bank credit problems. As business actors and credit market players, Commercial banks tend to have pro-cyclical character which specifically shows the positive correlation between credit supplies and economic cycles, promoting the formation of the economic cycle while exacerbating the volatility of the economy. The current real economy in China is still heavily dependent on bank credit financing, as a result, the bank’s credit procyclical effects would exert a even greater influence on our economy. Meanwhile, commercial bank credit continues to be the main channel of monetary policy transmission, therefore, the relationship between the marketing progress of commercial banks in credit market and monetary policy on credit controls is becoming increasingly important in our country.How was the commercial banks’Procyclical Effect evolved? Does China’s commercial banks have the conditions and characteristics to form a Procyclical Effect? Even if it does have, then whether the effect would do harm to monetary policy and destabilize macroeconomics? Through a combination of qualitative and quantitative empirical analysis, the paper would study these issues discussed above. The first part includes combing the literature and theoretical research of scholars from related fields, and summing up the commercial bank credit performance and the mechanisms of the evolution of pro-cyclical effects. Based on the literature and works, the second part involves verifying the existence of banking pro-cyclical through analysis of selected data of quarterly GDP and credit balance of RMB from1998to2013.In addition, the vector error correction model was used as an empirical test measurement method to prove that Chinese banking credit supplies produce pro-cyclical. The last part deepens the study of credit procyclicality on all these empirical results above, especially focusing on how the supervision of capital adequacy requirements on monetary policy on credit controls, combined with our1998-2013annual monetary policy and bank lending practices to propose responses and policy-recommendations on basis of construction of the inverse cyclical capital regulatory tools to reduce the pro-cyclical effects and the effectiveness of monetary policy.This study mainly comes in with the following conclusions:(1) China’s banking credit coms with pro-cyclical.With shift of governmental control over the size of commercial banks’credits from guiding instructions to mandatory requirements, the autonomy of banks’lending and marketing progress has levelled up, and our banks’ credit supplies show a significant sign of pro-cyclical;(2) For the counter-cyclical monetary policy, the pro-cyclical effects of banking credits are likely to undermine the significance of monetary policy to a great extent.(3) Banking credit procyclicality has different levels of effect on expansionary monetary policy and tight monetary policy in their respective regulatory effect, and it turns out that pro-cyclical effects have more effects on the former one.(4) As the inherent characteristics rooted in the economic and financial operation, it is difficult to completely remove the effects of fluctuations caused by pro-cyclicality of bank credit in the economic cycle, as a result, we should adopt a positive and proactive measures to deal with the issue of bank credit procyclical effects. On the one hand, we should establish a counter-cyclical credit control mechanism under the macro-prudential policy framework; on the other hand, we should take the pro-cyclicality of bank credit and the negative effects afterwards into account during policymaking and implementation of certain measures and strengthen the coordination of monetary policy and banking supervision, establishing effective mechanisms to ensure timely and effective exchange of information and coordination between central banks and banks regulating system.