Study On Effects Of Subordinated Debt On Risk-taking Of Chinese Listed Commercial Banks

The issuance of subordinated debt in China is later than the issuance in foreign countries.In2003,Industrial Bank issued subordinated debt for the first time in China,and in the same year,China Banking Regulatory Commission issued the "Notice on Counting Subordinated Term Debt as Subsidiary Capital",which really opened and developed China’s subordinated market.It classified subordinated debt into secondary subsidiary capital.And subordinated debt becomes one of the options to meet the requirements of commercial banks’ capital supplement tools.Since subordinated debt has the dual attributes of capital replenishment tool and debt financing tool,it can help commercial banks to achieve the goals of capital replenishment and credit expansion quickly,and at the same time,it can provide investors with investment options to optimize asset allocation and obtain stable returns.Therefore,issuing subordinated debt to supplement capital has become a normal behavior of commercial banks.However,it is found that the original intention of most commercial banks in China to issue subordinated debt is only to improve their own capital adequacy ratio,which also promotes the increasing research on subordinated debt to bank risk taking in China.Nevertheless,there are different opinions on the relationship between subordinated debt and bank risk taking.Therefore,based on the data of subordinated debt issuance and annual report of banks,this paper makes an empirical analysis of the relationship between the two,hoping to draw useful conclusions and provide useful guidance for future business decisions of banks.In this paper,the characteristics and functions of subordinated debt and the development course of subordinated debt in China are explained firstly.According to the theoretical basis of subordinated debt and risk taking of commercial banks,it mainly involves principal-agent theory,stakeholder theory,corporate governance structure theory and deposit insurance system theory and expounds the influence mechanism of subordinated debt on China’s commercial banks’ risk taking.Then,this paper selects risk-weighted asset ratio and non-performing loan ratio as the measurement indexes of banks’ active and passive risk taking.Based on statistical analysis and panel regression model,this paper studies the influence of subordinated debt on the active and passive risk-taking of 17 listed commercial banks respectively.The empirical results indicate that the issuance of subordinated debt has a positive impact on both the active and passive risk-taking of listed commercial banks.Furthermore,the heterogeneity of the influence of state-owned banks and non-state-owned banks on banks’ active and passive risk-taking under the constraints of capital regulation is further investigated.The results show that the subordinated debt issued by non-state-owned banks has a positive effect on banks’ active risk-taking,but has no effect on banks’ passive risk-taking.The subordinated debt issued by state-owned banks has a negative impact on banks’ passive risk-taking,but has no effect on banks’ active risk-taking.Combining the above analysis,finally the article puts forward four suggestions on the whole sample level,respectively: the banking industry must set up the correct concept of subordinated debt,give full play to the market constraints and the government supervision function,strengthen the risk management of commercial banks and improve the information disclosure mechanism and bond rating system,so as to reduce the risk of listed commercial banks in China.At the level of property right attribute,it is proposed that should enhance the role of targeted incentives for state-owned and non-state-owned holding banks,that is,it is suggested to enhance the capital supplement ability of non-state holding banks,and further strengthen the role and function of shareholders of state holding banks in preservation and increment of state capital.The purpose is to ensure that the capital structure of state-owned and non-state-owned holding banks can be further improved and developed in terms of their own problems,and to promote the formation of a more healthy interaction model between the banking industry and the subordinated debt market.