A Study On The Impact Of Capital Regulation On Commercial Banks’ Loan Term Structure

A country’s economic lifeline is related to the safety and stability of banking. Currently, Basel capital regulation was widely recognized by global banks. In our country, although it started late, we paid close attention to all aspects of the Basel Committee, and actively followed the regulatory philosophy proposed by Basel Committee to gradually improve our regulatory framework. However, most of the examples showed that while capital regulation forces commercial banks to focus on risk-control, it also makes banks shrink lending, which results in a number of economic recessions. In macroeconomics, different duration of loan has different impacts on economy. Short-term loan has short-term stimulate effect to economic growth while it causes inflation, long-term loan has long-term positive effect to economic growth and restrains inflation to some extent. So with capital regulation pressure increases, it is meaningful to study the degree of influence to different terms of loan while banks are faced with regulatory of capital adequacy ratio.Based on previous literature, we starts with the financial supervision of commercial banks, and researches the impact of capital regulatory to the loan term structure using both theoretical and empirical methods. In the theoretical analysis, we inspects from asymmetric information theory and a theoretical framework respectively to examine the internal mechanism of how capital regulatory affect banks’lending behavior. The theoretical result is that banks would reduce the proportion of long-term loans to meet regulatory capital requirements. To test it, we use 13 Chinese banks’data during the period of 2001-2012 as research samples, establish panel data linear regression models and use Eviews6.0. Including:(a) This paper uses loan volume, the amount of long-term loans and the ratio of long-term loans to total loans of commercial banks as explanatory variables respectively, (b) While study the above three explanatory variables, we use four proxy variables of capital regulation to simulate comprehensively. The empirical results show that in order to improve capital adequacy ratio banks would reduce loans, but the decline in long-term loans is lower than the decrease of total loans, which reflects that the sharp decline in loan relies more on the short-term loans. Finally, This paper proposed targeted and practical policy recommendations.