Research On Counter-cyclical Capital Regulation Of China’s Commercial Bank

The harm that the global financial crisis brings on the banking system and the realeconomy has parked extensive discussion on the cyclical behavior of banks. The capitalregulation in Basel Accord has the problem of pro-cyclicality. This is considered to bean important reason for pro-cyclicality of commercial banks. And credit channel isconsidered to be the main transmission mechanism of pro-cyclicality of capitalregulation. To deal with the pro-cyclicality problem of capital regulation of commercialbank, the Basel Committee proposed counter-cyclical capital regulation and the specificpractices. In order to promote the implementation of international regulatory standardsin our country, our regulatory authorities also made the provisions aboutcounter-cyclical capital regulation in the “Commercial Bank’s Capital ManagementApproach (Trial)”. Researching how to calculate and draw the counter-cyclical capitalbuffer to implement effective counter-cyclical capital regulation on commercial bankshas important practical significance.At the start, this paper analyzes that the background of the raising of commercialbank counter-cyclical capital regulation is the pro-cyclicality of the existing commercialbank capital regulation. And the regulatory mechanism is to build the relationshipbetween the counter-cyclical capital buffer and the economic cycle, the regulatory targetis to prevent the systemic risk of pro-cyclicality. Through comparing the provision andpractice of the domestic and foreign commercial bank counter-cyclical capitalregulation, we can learn three revelation. First, commercial banks in China shouldadhere to obtain counter-cyclical capital regulation. Second, the pro-cyclicality ofcommercial bank capital regulation in China need to be analyzed. Third, coming out therule of calculating and drawing the counter-cyclical capital buffer is quite urgent. Thispaper analyzes the relationship between the capital adequacy ratio of14listedcommercial banks and the economic cycle from2005to2013and other factorsaffecting the capital adequacy ratio. The results show that China’s listed commercialbanks’ capital adequacy ratio positively correlated with the economic cycle and theROA, and negatively correlated with the ROE. This means the presence ofpro-cyclicality of China’s commercial bank’s capital regulation. And China’s regulatoryauthority must accelerate to implement the counter-cyclical capital regulation. This alsoindicates that the ROE is the opportunity cost to replenish the capital and the ROA is one of the source to replenish the capital. The paper also analyzes whether thecounter-cyclical capital calculating and drawing method in BaselⅢ is appropriate inChina. And the result shows the applicability of the method in China is strong. SoChina’s regulatory authority should develop the counter-cyclical capital calculating anddrawing method combining with China’s national conditions. The proposal of thecounter-cyclical capital regulation is put forward at the last of the paper, includinginsisting on counter-cyclical capital regulation, improving commercial bank capitalregulation, making the counter-cyclical capital regulatory method more appropriate inChina and using the counter-cyclical macro-prudential regulatory tools.