Research On The Effects Of Capital Constraints On The Profit Model Of China’s Small And Medium-sized Banks

Since the21st century, great changes have taken place in the international and domestic financial supervision system. It seriously challenges the operation of banking industry and directly affects the sustainable development space of Chinese banking in the future. The outbreak of the financial crisis fully exposed the deficiencies in the existing regulatory system, in order to strengthen the banking supervision, in2010, the Basel III put forward stricter bank capital requirements, and stipulated that the Basel member countries must start to implement the Basel III from January1,2013. Against this background, Chinese government has also introduced the Chinese version to strengthen the capital constraint mechanism and regulate the bank’s business act. Against The Basel Ⅲ, China’s regulatory capital standards more stringent, this means that the banking of our country will enter a more stringent capital restriction period.Small and medium-sized banks, essential parts of banking system, play an important role in serving the local economy, promoting financial competition and improving fund allocation efficiency. For a long time, the profit model of Chinese commercial banks is led by interest income. The income structure that relies on interest income is single. The strengthening of capital constraint urges small and medium-sized banks to change the existing profit model, devote great effort to develop intermediate business that occupies fewer funds, improve capital adequacy ratio.The paper uses the method of combining theoretical and empirical analysis to research the effects of capital constraints on the profit model of China’s small and medium-sized banks. First of all, the paper introduces the research background, the research ideas and framework, the foreign and domestic literature review, and literature of the simple review. Second, the paper has carried on the limits to the small and medium-sized banks, and then expounds the theory of capital constraints and profit model, and this paper defines the small and medium-sized banks’profit model. Third, the paper choices two aspects to analysis the effects of capital constraints on the profit model of China’s small and medium-sized banks. One is the change of capital requirements; another is the change of regulatory rules. At last, the paper analysis China’s small and medium-sized banks’profit model and capital constraints in China: First, it simply introduced the current situation of foreign and domestic capital supervision system; Second, it choices three kinds of banks:national joint-stock commercial banks, city commercial banks and rural commercial banks, uses their capital adequacy ratio data to analysis China’s small and medium-sized banks’capital levels; Third, it uses twelve national joint-stock commercial banks’data to analysis the current situation of their profit model, the results indicate that capital constraint has initial effects but interest income still plays a leading role in profit model, the situation is changing step by step, the proportion of intermediate business in income is increasing gradually; At last, the paper analysis the problem existing in small and medium-sized banks’ profit model, with the more and more stringent capital constraint, these problems will be further highlighted, profit model transformation has be imperative.On the basis of theoretical analysis, the paper selects the data of129China’s small and medium-sized banks from2004to2012as the research sample, uses panel data model to analyze the profit pattern from two aspects of capital levels and the pressure of capital regulation. The selection of research variables are as follows:choice the net fee and commission income to total operating income ratio as explained variable; choice shareholder equity ratio and capital adequacy ratio to measure the capital level, the choice of capital buffer, undercapitalized banks and capital constrained banks to measure the pressure of capital regulation faces; choice non-performing loan ratio, asset, net interest margin, return on assets, loan to deposit ratio and loan ratio as control variables. The empirical analysis is divided into two parts:the first part is using the full sample data to regression; the second part is using the national joint-stock commercial banks, city commercial banks and rural commercial banks’ data to group regression. Through theoretical and empirical analysis, we can get some conclusions:capital level has a negative correlation with the proportion of intermediate business in income; capital level has more influence on city commercial banks and rural commercial banks. The pressure from capital supervision effectively urges the banks that lacking capital to improve capital adequacy ratio and the proportion of intermediate business in income effectively, but its effects on bank of capital adequacy are limited. In addition, asset and profitability have remarkable influence on intermediate business income. Banks with larger asset and higher level of profitability have higher income from intermediate business. Asset allocation has some influence on income of intermediate business and its influencing mechanism to different types of banks is not same.At the end of this paper, in order to better promote the transformation and the profit mode of China’s small and medium-sized banks, the paper proposes following suggestions. First, set up development pattern of capital saving. Second, chose appropriate direction of profit model transformation.