The Cyclicity Of Commercial Banks’ Capital Buffer And Its Effect To Credits Under Basel Ⅲ

The cyclicity of capital buffer, which means commercial banks’ capital buffer fluctuatein different economic cycle stage, impacts bank credits and economy fluctuation. And the supervision department’s bank capital regulation may be one reason that amplifies the cyclicity of capital buffer. In order to overcome the defects of existing capital supervision system and reduce pro-cyclical problems, BCBS announced the Basel Ⅲ on December 2010.Basel Ⅲ strengthens the macro-prudential regulation, and requires counter-cyclical buffer.Basel Illhopes to enhance bank credit’s viability dealing with all kinds of economic shocks through the counter-cyclical mechanism. And prompt banks to increase capital buffer prospectively on the economic upturn, in order to absorb loss when economic downturn, so it can ease the negative effects caused by pro-cyclical bank credits.Based on the literature review about the underlying reasons, empirical results and effects on credits of cyclical capital buffer, this paper has summarized Basel records and China’s capital supervision system, and has calculated counter-cyclical buffer that banks should reserve according to Basel Ⅲ. Then this paper has theoretical analyzed the formation mechanism of cyclical capital buffer and its transmission channel to credits. Through the establishment of dynamic panel data model, this paper has used Generalized Method of Moments (GMM) to examine panel data from 48 commercial banks of 2003 to 2012. During metrological examination about the cyclicity of capital buffer and its effects on bank credits, stock-listed banks and unlisted bank has been distinguished. The results indicate that China’s commercial banks’capital buffers are counter-cyclical, and it has been strengthened after the Basel Ⅲ new standard puts into effect. Higher capital buffers can reduce credit growth, so counter-cyclical buffer can reduce economic volatility. Finally, in order to promote buffers better working, this paper puts forward policy suggestions for banks and supervision department.