The Study Of Capital Adequacy Ratio’s Influence On China’s Commercial Banks

Since the subprime crisis broke out five years ago, the global economy has gone through along period of deep recession and scholars have done a lot of research on bank capitalregulation. The Basel committee released The Basel Agreement III at G20summit. Someoriginal measures in The Basel Agreement II have been modified and some new measureshave been added into The Basel Agreement III. According to The Basel Agreement III,there is a large gap in the bank capital especially core capital and tier1capital. TheCBRC(China banking regulatory commission) released Commercial Bank CapitalManagement Approach (Trial) on June8,2012, of which the capital regulation is referringto The Basel Agreement III. Since2013, commercial banks in China have to implementnew regulations on capital adequacy ratio. This is the appropriate time to study whetherthere is a relationship between capital adequacy ratio and profitability and how the formeraffects the latter.This paper adopts multiple regression as the empirical method. This paper has abreakthrough point, which is based on the bank activities. As a consequence, the sample isnot limited to listed commercial banks or joint-stock commercial banks, but also includesother banks. The sample concludes41commercial banks in China, covering4kinds ofdifferent commercial banks with the longest time span from2003to2012, which is one ofthe innovations of this paper.The conclusions of this paper are as follows.1. Core capital adequacy ratio has asignificant positive effect on commercial banks’ profitability.2. The correlation coefficientof the listed banks is smaller than those who haven’t listed.3. The correlation coefficient ofrural commercial banks is the largest of all four kinds of commercial banks.4. The ratio ofasset return has a significant positive effect on itself.5. After the subprime crisis in2008,the correlation coefficient is getting bigger among listed commercial banks than before thecrisis.