A Study On The Problem Of Preference Shares Issued By Commercial Banks In China

Preferred shares have the nature of both ordinary shares and bonds and it is a supplement to the traditional financing tools. However, preferred shares are not well developed among the commercial banks in China due to a number of certain causes. In accordance with The Basel Agreement III and Commercial Bank Management Regulations(Pilot Edition), Commercial Banks need to increase capital level and to accomplish the capital adequacy ratio. Under the circumstance of increasingly strict supervision, inviting tier one capital tool is extremely important for the commercial banks to diversify their financing channels and to balance capital structure. As one of the main financing tools in the developed countries, preferred share is becoming a possible choice for Chinese commercial banks to innovate tier one capital tools.A network of service points for preferred stock has a great significance. Through issuing preferred shares, commercial banks are able to supply their capital, adapt the requirements of the market supervision, ease the pressure of capital increase from the ordinary shares and reduce their excessive dependence on sub-prime debt.This essay, in the first, aims at summarizing the development of the preferred stock market among the commercial banks in China. Based on four aspects—the increasingly strict capital supervision, the lack of financing tools, the release of capital quality risks and the block of the financing channels, it will analyze the need for inviting preferred shares and explain the significance of preferred shares among the commercial banks in China. Furthermore, the essay will discuss the risks brought by the preferred shares to the issuing banks and the previous ordinary share holders. Lastly, upon the aspects of practicability planning and relevant policies, the essay is supposed to analyze the possible problems during its issuing process among the network and to put forward the suggestions for its improvement.