Research On The Effects Of Leverage Regulation On The Credit Business In Chinese Commercial Banks

Most financial institutions are keen on highly leveraged business,though this kind of business model can bring about high profits,it inevitably becomes a huge source of risks,that's where the financial crisis of 2008 stemmed from.During the crisis,some banks suffered massive losses due to high-leverage corporation,in part because supervision loopholes left rooms for such risky behavior.Having reflected on the risk supervision mode,the Basel committee published the Basel ? in 2010 and placed more emphasis on macroprudential supervision,the leverage ratio was brought into the capital supervising framework to remedy deficiencies of the single capital adequate ratio,and the minimum regulatory requirement of the leverage ratio was set to be 3%.In order to improve banking capital supervising system,supervision authorities in China also promulgated policies about leverage regulation in 2011 and issued revised edition in 2015.According to the policy,the leverage ratio of commercial banks in China must not be less than 4%.The double-index supervising framework has stronger constrains,which greatly helps reinforce the risk control of commercial banksAs the traditional and core banking business,the credit business takes important part in the operation of commercial banks,its earning ability is also directly related to the bank's overall profits.Considering that the leverage ratio is not sensitive to the risks and has restraining effects on the asset scope of banks,commercial banks tend to take corresponding adjustments in credit decisions under the leverage regulatory requirements.As a result,the development of credit business in commercial banks would be somewhat affected.Therefore,based on the theory of the leverage ratio and capital supervision's effects on banking credit behaviors,the paper analyzes the relationship between the leverage ratio and the banking credit behaviors,and then explores how the leverage regulation influences credit business in commercial banks through empirical method.Firstly,the paper describes the leverage ratio's evolution process,connotation and features,and compares the leverage ratio and capital adequacy ratio in formation mechanism.At the same time,the banking credit behavior is defined and the current situation of banking credit business in China is analyzed in the paper.Then,the theoretical model is set up to discuss the influencing mechanism of leverage regulation to the credit scale and structure in commercial banks.In the empirical study,the paper takes data of 36 listed commercial banks in China from 2007 to 2018,and analyzes the impacts of leverage ratio regulation on the size and structure of credit in commercial banks,the main conclusions are as follows:(1)The leverage regulation has restricting effects on the size and growth of credit in commercial banks,and such restricting effects are greater for banks with smaller scale(eg.urban and rural commercial banks).(2)The ratio regulation may cause the credit structure adjustment in commercial banks,the proportion of medium and long term loans tends to increase,while the proportion of personal loans and credit loans tends to decrease.Though the leverage regulation could help banks in risk control,sometimes the regulation may lead to adverse selection and make the stimulation force function in the reverse direction,as a result,banks would prefer high-risk loans.The backward effects are more obvious for the banks with larger scale(eg.state banks and joint-stock commercial banks).(3)As the leverage ratio of banks increases,the leverage regulation will cause less restricting effects on the size of credit in commercial banks,but will lead to more adverse selections.Finally,on the basis of the results above,the paper provides correlative suggestions in order to improve leverage regulation and promote the development of banking credit business.