Research On The Impact Of Capital Regulation Constraints And Income Diversification On Bank Soundness

In the post-crisis era,governments have strengthened financial regulatory reform.The China Banking Regulatory Commission issued"Commercial Bank Capital Management Approach(Trial)" reference to Basel III in June 2012.The capital supervision system which is on the basis of this Approach,have strengthened the capital requirements,so that commercial banks’ expanding in size and business operation is subject to stronger capital regulatory constraints.At the same time,with the promotion of the domestic interest rate market reform,the development of Internet finance and the innovation of financial technology,financial resources show a trend of diversified allocation.Commercial banks how to deal with capital regulatory constraints,carry out diversified operation,and maintain the trend of steady development have become hot issues from all walks of life.Based on combing the existing research literature,this paper analyzes the logic mechanism of the mutual influence between capital regulatory constraints of banks,income diversification and bank soundness.The Z-score is used as the proxy variable of bank soundness to examine the level of soundness of Chinese commercial banks in recent years.And based on the non-equilibrium panel data of 27 major commercial banks in China over the period of 2006-2016,this paper establishes panel regression models to verify the relevant theories and hypotheses,and the purpose is to explore the impact of capital regulatory constraints and income diversification on bank soundness.The conclusions are as follows:(1)The higher the capital regulatory constraints,the stronger the banks’ motivation to operate the light capital business and the higher the level of income diversification.In the background of the capital regulation system has gradually strengthened,in order to achieve regulatory standards and exempt from punishment,banks will inevitably change management strategy,by optimizing the capital structure,enriching business varieties and carrying out reasonable asset allocation to promote the diversification of income.(2)There is an inverted U-shaped relationship between income diversification and bank soundness.In a certain rage,the higher the income diversification,the better the bank soundness,and more than a certain scope will reduce the conservatism of banks.At present,income diversification is at a low level and can improve bank soundness.(3)The interaction of capital regulatory constraints and income diversification will significantly promote bank soundness.In the face of capital regulatory constraints,banks in order to meet the regulatory requirements,while increasing bank profits,will improve their income diversification through innovating business and products to improve the soundness of banks.In order to improve the soundness of bank management,this paper suggests:Firstly,further improve the capital supervision system.In the background of development of Internet finance,the rise of financial technology such as big data and cloud computing,regulators should combine macro-prudential and micro-prudential regulation measures,and in the process of supporting the healthy development of financial innovation,should conduct differentiated supervision over different forms of financial innovation;Secondly,strengthen innovation of income diversification business.Banks want to win in competition,should combine their own capital condition and risk control ability,strengthen financial products innovation,develop new products,to provide customers with a variety of business and products;Finally,establish sustainable capital supplement mechanism.Through innovating capital tools,maintain endogenous financing and broaden exogenous financing channels,while considering establish sustainable capital supplement mechanism to protect banks against risks and maintain robust operation.