Rearch On China’s Listed Banks’ Capital Supplement Mechanism

Financial crisis swept across the world in2008, the regulatory authoritiesrecognized the existing regulatory standards cannot play an effective management toreduce the bank’s risk, so the Basel committee revised stricter agreement, that is BaselⅢ, the agreement on capital is redefined, emphasizing high-quality capital formation,at the same time, it sets up a higher standard on bank capital regulation. In2012theChina banking regulatory commission published “commercial bank capitalmanagement approach (trial)”, the requirements of the core capital requirements willrises from4%to5%, the requirements of tier1capital ratio reaches6%. This creates1%space to issue other tier1capital instruments.“China Banking RegulatoryCommission guidance on the implementation of the new Chinese banking regulatorystandards” points that systemically important banks and non-systemically importantbanks under normal conditions with capital adequacy ratio are required to achieve therequirements of11.5%and10.5%respectively. The above rules give the bankpolitical pressure to add capital. At present China’s banking sector capital constitutionis relatively simple, lacks of capital supplement tools, higher proportion of ordinaryshares in the capital increasing bank funding costs, resulting in greater pressure onexogenous financing. And the the single of financing channels also brings bigger riskto the bank. The purpose of this paper is to explore the financing channels of China’sbanking industry, to provide a new perspective for bank supplementary capital,eventually establish long-term capital supplement mechanism. The study is helpful fordomestic Banks to deal with their own capital structure is single, financing cost is toohigh. Through case analysis of foreign mature capital tools, it can provide a blueprintto innovate capital instruments. At the end of the paper, capital replenishmentdecisions are compared, the empirical analysis about Chinese banking capitalsupplement gives advice on when and how to choose. This is good for our Chinacommercial bank to create a long-term capital supplement mechanism.Propose four ways to increase bank financing: converting exogenous financing toendogenous financing, changing in bank profitability model, adjusting bank depositand loan capital structure, actively develop new tools. According to three kinds of the most common way of replenishing capital, analysis when and what kind of capitalsupply way to choose, different ways of capital supplement provides guidance on theeffects of the bank. The full text is finding and asking questions, then proposingsolutions approach. In the empirical part, purchase, the announcement of a rights issue,issue bonds are studied, capital adequacy ratio, core capital adequacy ratio (level1),profitability, capital expansion rate, bank scale, the asset-liability ratio are sixindicators in the preceding year, significant test finds that when the bank capitaladequacy ratio of the preceding year especially when the core capital adequacy ratio islow, it supplies capital. When the bank profitability index in the previous year is lowor relatively large size, it usually should publish supplementary capitaldecision-making. And the asset-liability ratio and assets of the expansion of thepreceding year have no significant influence on supplement capital. In terms of capitalsupplement mode selection, bank capital complement by issuing bonds is mostfrequently, but to meet the eligibility criteria of debt, we can issue subordinated debtthat may be written down or convertible shares to supplement the capital of subprimedebt. Private placement is more easily than rights issue for capital supplement way,because regulators would not be strict with the issue of the private. Rights issue ismore heavily regulated, using threshold is higher, applications are few. According toEvent window method, this paper calculates cumulative abnormal returns to test theeffect of the capital complement way. Issuing bonds is better than rights issue, themarket reaction to private placement is usually superior to react to a rights issue, andthe effect of issuing bonds in most cases is higher than the purchase, but theadvantage is not significant. In the end, the paper urges banks to increase theirprofitability, the government to support policies to follow up and supervision andexperts also should improve their innovation ability of capital tools.