The Pro-cyclical Effect Of Capital Adequacy Ratio Of Commercial Banks In China And Its Driving Factors

Based on2007-2012panel data of China’s14listed banks, this paper made anempirical analysis of the cyclical behavior of bank capital buffers and its drivingfactors from the perspective of housing price. The results showed that the capitalbuffers of listed Banks in China present a pro-cyclical effect when housing pricefluctuates.From a quantitative point of view, when housing price rose1%, bankcapital buffers dropped0.06%on average.Further empirical result showed that themain reason of capital buffers’ pro-cyclical effect is that the fluctuation range of netcapital caused by housing price fluctuation is less than the rang of risk-weightedassets.And the changes in the size of the risk-weighted assets are mainly influencedby bank credit because the housing price fluctuation will significantly affect the bankcredit.Therefore,bank credit is the most direct driving factor of bank capital buffers’pro-cyclical effect under the system of bank capital regulation.To alleviate the pro-cyclical effect of capital adequacy ratio, from the perspectiveof capital regulatory, capital supplement mechanism of sustainable developmentshould be established,and we should set a reasonable limit of real estate loansaccounted and set up dynamic capital buffers standards.From the perspective of thecontrol of housing price fluctuation, the allocation proportion of land transfer incomeand property taxes should be reasonably arranged among the various levels ofgovernment.In addition,the government should increase the supply of rental housingand reduce property housing supply.