Controls of capital requirement to behavior of banks —empirical tests in the China

Abstract

Capital adequacy requirements have different impact on the risk behaviour of heterogeneous commercial banks. This paper creates a credit structure preference index to describe the risk preference of commercial banks, introduces the implementation and loosening of capital requirements into econometric model, and performs aggregate testing and classified testing on data in the period of 2002 to 2006 from 29 Chinese commercial banks. It can be concluded that capital requirements have enormous controls on the risk behaviour choice of commercial banks while the loosening of capital requirements offsets the positive effect caused by capital requirements, small and medium-sized banks are more sensitive to policies than large-sized banks, China's commercial banking system needs further deep reform of market economy.