Research On Capital Buffering And Risks Of Chinese Listed Banks

After the financial crisis, international financial supervision and regulation department pay attention to the harm of pro-cyclical financial system. The third edition Basel rules said during the boom, banks need to make more capital buffers to protect potential losses in an economic recession. In this paper, we study the bank capital buffers and the relationship between the bank’s risk, the assessment of macroeconomic situation on capital buffers and the influence of bank’s risk and business diversification to mention capital buffers and the effect of risk prevention, to establish the optimal capital buffers to hold or provision is of important theoretical and realistic significance.This paper follows economic theory and quantitative economics theory, the use of qualitative analysis, quantitative analysis and empirical analysis. First, elaborating the relevant domestic and international research status. Secondly, describing the type of counter-cyclical capital buffer mechanism and bank risk. The relationship between fluctuation of macro-economy and capital buffer volume and risk of bank is analyzed with quarterly unbalanced panel data of 16 listed banks in China from 2002Q1 to 2013Q3. The empirical Study shows there is no obvious Pro-cyclicality in the capital buffer of the listed banks. On the other hand, however, the risk adjustment of the banks is very sensitive to economic fluctuations. There is correlation between the adjustment of capital buffers and the risks’ adjustment. Banks will continuously adjust their capital buffers when facing their risks’ oscillation. It is also found in this paper that the extent of diversification of the banks is still low, and the correlation between income fluctuation and risk adjustment is obvious. Thus, to diversify income sources is a motivating factor for banks to reduce drawing capital buffers and to improve competitiveness in market. This is very important to the Bank regulators, it related to the risk assessment of bank capital buffers and whether the bank will take into account revenue diversification.