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The Impact of Capital Adequacy Ratio on the Stability of China’s Commercial Banks

Author: ZhangLi
Tutor: ZhangYingChun
School: Southwestern University of Finance and Economics
Course: Finance
Keywords: Commercial Banks Capital Adequacy Ratio Stability
CLC: F832.33
Type: Master's thesis
Year: 2013
Downloads: 234
Quote: 0
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Abstract


Since the financial crisis of2008, regulators and academics have widely concerned about the financial stability. The commercial banks’instability usually is a core element of the financial instability. Therefore, to maintain the stability of the commercial banks is the key to ensuring financial stability. Capital can withstand risks, absorb losses, maintain market confidence and strengthen corporate governance. After the commercial banks’crisis, there are often a series of capital-rescue plans. The CBRC issued the tentative capital management approach to reclassify the commercial banks’capital and improve capital adequacy requirement, at last, in order to safeguard the stability of the commercial banks.In short, whether in the actual economic or regulatory authorities, there is more and more attention to the banks’stability. Thus the CBRC strengthen the banks’regulatory capital adequacy ratio. However, the improvement of capital adequacy ratio does not necessarily enhance the stability of the commercial banks. Therefore, this paper focuses on the relationship between the capital adequacy ratio and the banks’stability in China.According to the needs of the study, this paper uses literature review, theoretical analysis and empirical research methods. The research is composed of six parts.The first part introduce the reasons why this paper select this topic and the importation of this topic, the definition of the concepts involved in this study, the methods about how to finish this study, as well as the innovation and inadequate of this paper.The second part is the literature review. This paper review the study about the capital adequacy ratio, banks’ stability and the relevancy between the two issues both at home and abroad. Current study did not directly analysis if the level of commercial banks stability changes along with the capital adequacy level changes. Therefore, this paper studies the relevancy between capital adequacy ratio and the stability of China’s commercial banks.The third part, describe the status of the research questions. The weighted average capital adequacy ratio is rising. The main reasons are regulatory promotion and a series of financing measures. This paper research the main factors affecting the stability of commercial banks from three aspects, including macroeconomic environment and demand, the development of the industry and the micro-commercial banks’factors.The fourth part is the theoretical analysis. The reasons of the addition of the capital adequacy ratio may be the channels of capital or assets. The analysis found that there are both positive and negative aspects of the role of both channels. Then, how does the combination of positive and negative impact the stability of commercial banks. This paper will further take empirical analysis to verify the effects.The fifth part is empirical test. This paper collects the data of the2006-2011annual reports of15sample banks.In this research, it builds a panel data model and uses EViews6.0software to do descriptive statistical analysis and uses the Pooled EGLS method to do this cross-section random effects regression analysis.The sixth part is the conclusions and policy recommendations.After theoretical analysis and empirical tests, this paper gets conclusions as follows:First, the analysis found that the inverted U-shaped relationship between capital adequacy ratio and banks’ stability. Second, the increasing in money supply improves the level of commercial banks. Third, there is a significant negative correlation between market concentration and commercial banks’stability level. Fourth, the level of liquidity increased the stability of commercial banks. Finally, credit assets concentration is not conductive to commercial banks’stability operation.

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CLC: > Economic > Fiscal, monetary > Finance, banking > China's financial,banking > Financial organizations, banks > Commercial banks ( specialized banks )
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