The Research On Procyclicality Of Chinese Commercial Banks’ Capital Adequacy Ratio

Financial crisis erupted in2008, led to worldwide discussion aboutpro-cyclicality of financial system and lack of financial regulatory. In the new roundof regulatory reform, remitting pro-cyclicality and withdrawing counter-cyclicalitycapital buffer had reached an agreement. Both of Basel ⅢAccord and China’sAdministrative Measures for the capital of Commercial Banks (for TrialImplementation) have introduced the countercyclical capital buffer and proposed toset macro-prudential regulatory framework. So, in the context of new policies, studyon pro-cyclicality of capital adequacy ratio(CAR）in China has strong practicalsignificance.Theoretically, this paper explains the reason of developing the pro-cyclicality ofCapital adequacy ratio from endogenous and exogenous aspects and analyzes thepro-cyclicality resulted from capital regulatory under the framework of Basel1andBasel2. This paper demonstrates panel data of fourteen Chinese commercial banksfrom2004to2012to analyze the relationship between CAR of Chinese commercialbanks and economic cycle. The result suggests that CAR and economic cycle movetogether, which means CAR has the feature of counter-cyclicality. Of wholecommercial banks, the counter-cyclicality of municipal commercial banks’ CAR ismost significant.Capital adequacy ratio of Chinese commercial banks has the feature of counter-cyclicality, but this phenomenon is resulted from Chinese special period andenvironment. In the selection of countercyclical regulatory tool, this paper mainlystudied the countercyclical capital buffer and analyzed the applicability of credit/GDPGAP (credit/GDP GAP) which was recommended by bank for internationalsettlements. By using the historical data of2000-2013, the index calculated by thecountercyclical capital buffer can alleviate the accumulation of expansion of creditrisk in commercial Banks, which validates the link variables is a proper index in ourcountry.Finally, this paper offers some advice for perfecting counter-cyclicality capitalbuffer and explains how to adapt to new regulatory environment for Chinesecommercial banks. For commercial banks, considering the higher and higher CARrequirements trend, banks should actively change the mode of operation, increase profitability ability, improve the internal financing channel and achieve theequilibrium between profit and risk. Regulators should increase the consciousness ofmacro-prudential management, improve and perfect detailed rules of countercyclicalpolicy, strengthen the the coordination among different regulators and activelyparticipate in international cooperation.