Research On Effects Of Banking Capital Regulation On Economic Growth In China

Banking Capital regulation is the core content of macro-prudential regulation inbanking. At the same time, banking capital plays a very important role in maintainingbusiness steady and controlling risks. With reference to the relevant experience inbanking capital regulation of developed countries, banking capital regulation impactson the credit scale of every commercial bank, thus to the economic growth of a country.Theoretical studies suggest that banks regulated severely usually reduce their creditscale so as to satisfy the regulatory requirements. At present, the financial system inChina gives priority to the indirect financing of commercial banks. The main source ofinvestment is banking credit, therefore, the changes of banking credit scale may causenegative effects of economy and harm the economic growth. With the continuouspolicy development of banking capital regulation, studying the impact of bankingcapital regulation on bank credit scale and economic growth has important significancein the new period of China.The article begins with the concept of banking capital regulation, introducing thereform process of banking capital regulation in the world and China, and thendescribes the performance of economy in some developed countries after carrying outthe banking capital regulations. In addition, the article elaborates the relationshipbetween banking capital regulation, credit and economic growth theoretically. Theconclusion shows that commercial banks usually shrink the credit scale in order tomeet the requirements of banking capital regulation, which will cause negative impacton economic growth in the short term.The article does an empirical research on the banking and the economy as wellwith the data of year2003to2012in China to analyze the effect on the economy moreaccurately. The research is divided into two parts. Firstly, we study the effect ofbanking capital regulation on credit scale. The existing research mainly used the staticmethods, which cannot perfectly reflect the dynamic rules in the process. Intead, thearticle adopts a dynamic panel data model. Secondly, the article establishes a VARmodel, and uses the impulse response function to study the shocks that caused bycredit of economic growth. In the end, the article makes a conclusion on the influenceof banking capital regulation on economy, and advances some useful policy recommendations based on the conclusion.In this paper, the empirical results show three conclutions according to theresearch.(1) the more strict the banking capital regulation is, the less credit scale theundercapitalised bank has. The impact on the current credit scale of the currentbanking regulatory pressure is larger than the lagged banking regulatorypressure.(2)The impact of the credit to GDP is positive and weak.(3)Banking capitalregulation has more significant negative influence during economic recession on theeconomic growth, and this effect lasts eight quarters. This conclusion is similar withthe impact of the banking credit to the economy of the world, which is calculated bythe Basel committee.Finally, the article puts forward three suggestions. Firstly, to build an incentivecompatibility framework of banking capital regulatory to improve the regulationefficiency. Secondly, to choose the reasonable path and time of banking capitalregulation to promote economy development. Last but not the least, to actively expandfinancing channels in order to promote the development of a multi-level capital marketconstruction.