The Research On The Cyclicality Of Capital Buffer Of Chinese Commercial Banks

The global financial crisis erupted in 2007 highlighted the issue of the pro-cyclicality of financial system.After the financial crisis,the Basel Committee promulgated the Basel III agreement,introduced a macro-prudential regulatory framework,and proposed counter-cyclical capital buffers for pro-cyclical problems.However,China has not yet introduced relevant accrual system,which includes hooking indicator,the timing and amount of requirement,and the design of this system needs to consider the periodicity and its characteristics of the capital buffer of Chinese commercial banks.Therefore,the topic of this paper carries certain practical significance.This paper has carried out research from theoretical and empirical evidence.In the theoretical analysis,combined with relevant research,this paper summarizes three motivations for commercial banks to hold capital buffer,which are satisfying the requirement of capital supervision,enhancing risk taking ability and coping with the pressure of market discipline.Then this paper analyzes three reasons why the capital buffer tends to behave cyclically,which include the bank asset adjustment behavior has a certain tendency of pro-cyclicality,the pro-cyclical effect of Basel ? and Basel ? and the heterogeneity of bank size on the periodicity of capital buffer.In the empirical analysis,this paper uses the bank capital buffer as the explanatory variable,and the macroeconomic variable obtained by the HP filter as the main explanatory variable,while considering the bank micro level influential factors,including income diversity,profitability,risk level,scale and loan growth,to build the basic model to study the cyclicality of capital buffer in Chinese commercial banks.Then this paper tests whether the capital buffer of Chinese commercial banks behave differently at the different stages of the macroeconomic cycle,as well as the heterogeneity impact of bank size on Chinese commercial banks' capital buffer.Finally,the paper further analyzes the motivation of the cyclicality of Chinese commercial banks' capital buffer.Using the panel data of 20 listed Chinese commercial banks from 2004 to 2017 as a sample,applying the system GMM model for analysis,the empirical analysis of this paper found that: first,during the total sample period,the capital buffer of Chinese commercial banks performs counter-cyclically,bank level factors like income diversity,profitability and scale all have significant effects on the capital buffer;second,the cyclicality of the capital buffer of Chinese commercial banks is significantly different at different stages of the economic cycle.The capital buffer of Chinese banks behaves counter-cyclically during the economic upward,while pro-cyclically during the economic downward;third,the size of banks both have heterogeneous effects on the cyclicality of capital buffer of Chinese commercial banks.Compared to 5 largest state-owned and joint-stock banks,the capital buffers' counter-cyclicality of urban banks is stronger;forth,the counter-cyclicality of the capital buffer of commercial banks in China is mainly driven by molecular adjustment channels.Based on the above analysis,this paper proposed relevant suggestions for supervisions of commercial banks in China and bank capital management.