Research On Capital Regulation, Internal Governance And Bank Risk-Taking

As a financial intermediary, commercial banks connect the providers and demanders of the funds.Banking’s internal crisis may involve into crisis of the whole industry.2007 American financial crisis is a good example. The people have realized that banking plays an important role in a country’s economic development and it is important to control the risk-taking of banks. Therefore, it has great practical significance to study the influence of commercial banking regulatory and internal governance mechanism on the risk-taking of banks.External governance mechanisms and internal governance mechanisms can control risk-taking behaviors of banks. And external governance mechanisms can be divided into regulatory constraint mechanism and market discipline. Internal governance mechanisms include board of shareholders, board of directors, board of supervisors and executives. At this stage, this paper does not take consideration of market discipline because of the imperfect market discipline. So this paper aims to study capital regulation, internal governance and risk-taking behavior of banks.Studies focus on the relationship between capital regulatory, internal governance and bank risk-taking separately. In addition to the above study, this paper also studies the relationship between capital regulation and internal governance by adding product terms in the model of internal governance and bank risk-taking innovatively. The interaction between capital regulatory and internal governance can be judged by the symbol of product terms. Studies have shown that capital regulation and internal governance has a substitution effect to constrained bank risk-taking.This paper summarizes the literature of the capital regulation, internal governance and the risk of bank at home and abroad. Then this paper analyzes the existing theory and put forward ten hypothesis propositions. After following the existing models, this paper proposes three models that describe the affecting factors of commercial banks’ risk-taking behaviors. Using the panel data of 16 listed banks from 2004 to 2013, empirical results about capital regulation, internal governance and bank risk-taking are obtained. The study shows that capital regulation and internal governance are of great significance to the risk of banks. To be more precise, punishment of capital regulation can significantly reduce the risk of banks, but it can’t improve the banks’ capital. Autonomous capital regulation can significantly increase capital, but it’s not sensitive to the risk. The change of capital and the change of risk do not have the significant interaction. Moreover, ownership concentration, equity restriction ratio and independence of board are able to reduce the risk of banks and state-owned shareholders may significantly increase the risk of the bank on population sample. Then independence of board act as a significant substitute to capital regulation, but ownership concentration and equity restriction ratio don’t significant. Finally, according to analysis of theories and empirical results, the paper put forward some suggestions about the risk control.