A Study On The Effect Of Capital Adequacy Ratio On Efficiency Of Commercial Banks

Banking is the main sector of the financial industry in China.It concerns the whole national economy. Whether banking can maintain a stable and efficient operation will have a direct impact on the development of the financial sector. The Basel Ⅲ was born after the2008financial crisis, marking the establishment of the new regulatory framework.It raises the capital adequacy ratio of regulatory standards once again, which makes the capital adequacy ratio become a hot topic again.Meanwhile, China’s commercial banks are faced with competition from domestic commercial banks and foreign banks at the same time.As it can reflect competitiveness of one bank,efficiency arouses people’s wide concern.Under this background,it is of great theoretical and practical significance to study on the relationship between the capital adequacy ratio of China’s commercial banks and their operating efficiency.In this paper, we firstly reviews and summarizes the results from the domestic and foreign literature research,and takes capital adequacy ratio of commercial banks and efficiency theory as the theory of supporting. This paper selects quarterly data of a bank from2007to2012for empirical study. On the one hand,this paper analysis the situation of capital adequacy ratio of a bank, on the other hand it uses data envelopment analysis (DEA) for determine the efficiency of listed commercial banks,then compares and interprets the results. Finally, combined with the unit root test,co-integration test,Granger causality and ADF test,this paper establishes a corresponding model to study the impact of the banks’ capital adequacy ratio on its bank efficiency. The result shows that there is an inverted "U"-shaped curve between capital adequacy ratio and bank efficiency.When a bank’s capital adequacy ratio is less than the threshold, increasing a bank’s capital adequacy ratio will improve its cost efficiency.On the contrary,it will reduce bank efficiency.Based on theoretical and empirical results, the paper puts forward several reasonable proposals.