Reserch On The Cyclicality Of The Capital Buffers Of The Commercial Banks Of China

The outbreak of the financial crisis in 2008 brought a severe blow to the global financial system and regulatory regime. Financial crisis not only sweep the world economy, but also led to the reflection and reform of financial regulatory authority for commercial banks. The main contribution of the new capital regulatory agreement is the introduction of risk-sensitive factor and IRB. It makes the risk weights and ratings of enterprises vary with changes in the economy.At the same time, the risk level of capital held by banks directly linked with its assets. However, when the new capital regulatory agreement is improving the capital regulation, it also led to a pro-cyclical capital adequacy ratio of commercial banks. A dynamic feedback mechanism form between the economic cycle and financial system, and it exacerbates the Fluctuations of the economy. In order to alleviate the pro-cyclicality of the financial system, Basel III clearly suggest the building of the counter-cyclical capital regulation, regulate the behavior of bank through the establishment of counter-cyclical capital buffer credit, and thus stabilize the economy. However, whether the capital buffer presented pro-cyclicality or counter-cyclicality, academia has not agreed to a formal conclusion. Therefore, the article is about to research on the capital buffers of China’s commercial banks using by theoretical and empirical analysis, based on the counter-cyclical capital regulation, thus to obtain a clear conclusion of whether the capital buffer presents a pro-cyclicality or counter-cyclicality. The conclusion would bring a great significance to the effective implementation of counter-cyclical capital regulation system.At the theoretical level, the paper elaborates pro-cyclicality formation mechanism of the financial system based on the old and the new Basel. Then use mathematical derivation to research on the approaches and mechanisms on which capital cushion impact macroeconomic. Results presented the implementation of the necessity of counter-cyclical regulatory capital buffer in the case of pro-cyclical. Based on the theory analysis, the paper conduct empirical research on the relationship between capital buffer and economic changes used by the semi-annual data selected from fourteen listed commercial banks from 2005-2013. The paper divided economic cycle into upstream interval and downstream interval through the introduction of dummy variables. Then analysis the relationship between capital buffers and economic cycle of different ownership banks in different economic period. Furthermore, paper will explore the factors behind the counter-cyclical in the perspective of capital and risk-weighted assets.The results indicate that the capital cushion of China’s commercial banks varies the same direction with the change of economy. The capital buffer level of state-owned banks shown obvious counter-cyclical whether in the period of economic prosperity or recession, however the capital buffer level of non-state-owned banks shown counter-cyclicality only in the recession of economy. The motivating factor of the counter-cyclicality is the regulation of bank’s capital and risk-weighted assets. But for the different ownerships of the bank, regulated manners are differently. Faced with changes in the economy, State-owned banks tend to use the way of capital regulation to adjust capital buffers. However the non-state-owned banks tend to use the way of risk-weight assets regulation to adjust capital buffers.