The Research On The Cyclicality Of Commercial Banks’ Capital Buffer In China

The US subprime mortgage crisis made the global economy suffer from a severe blow. The outbreak of crisis exposed the vulnerability of the banking system and its supervision, causing people to review the existing financial supervision system and policy. People feel more and more the pro-cyclical of capital regulation and financial system and their negative effects. Economic cycle, bank credit and bank capital regulation framework cause and enhance the pro-cyclical behavior of bank capital buffers together, increasing the risk of the financial system and the volatility of the economic system. To research on the pro-cyclicality of banks’capital buffers and to reduce the pro-cyclical behavior of bank credit are of great significance for the stability of banking operations and the development of our economy.Paper firstly reviews and summarizes domestic and foreign existing related studies and expounds the theoretical basis and the formation mechanism of commercial bank’s capital buffer pro-cyclicality.Secondly, use the unbalanced panel annually data of90commercial banks in China form2002to2012to do the empirical tests about cycle behavior and its influencing factors of Chinese commercial banks’capital buffers. In addition, the paper also looks into the difference between listed banks and those not. The paper adopts capital buffer and its lag variable, the volatile components of GDP annual growth rate and its lag variable, return on equity, ratio of loans to total assets, loan growth, ratio of non-performing loans, asset size and the cross variable of the volatile components of GDP annual growth rate and the asset indicator, using Statal2.0software to build model and GMM method to carry out the regression analysis.Overall results show that it is evident in the pro-cyclical characteristics of Chinese commercial banks’capital buffers. The level of commercial banks’capital buffers have significant negative correlation with return on equity, ratio of loans to total assets, ratio of non-performing loans and asset size. The analysis result of cross variable shows that the bigger a bank is, the worse effect it will have on the pro-cyclical of bank’s capital buffer, which means the "too big to fall" exists in China. However, this analysis result is not significant. Besides, there is lag effect of the economic cycle on capital buffers of all samples and those non-listed banks. When determine the level of capital buffers, listed banks are more focused on the growth of loans while those not-listed pay more attention on the ratio of loans accounted for assets.Thirdly, the paper expounds the contents of counter-cyclical capital buffer mechanism and its implementation method. According to the specific condition of China’s macro economy and the bank credit, calculates the theoretical counter-cyclical capital buffers from1993Q1to2013Q2. The results show that counter-cyclical capital buffer mechanism and the link variables proposed by the Basel committee are suitable in China.Based on all the above analysis, the paper gives a main conclusion finally, and puts forward a few suggestions for Chinese bank capital regulation and management.