Regulation of Leverage Ratio, Credit Expansion and Credit Risk of Commercial Banks

Abstract

“Basel III” and “Measures for the Administration of Capital of Commercial Banks” propose to use leverage ratio as a supplement to capital adequacy ratio. Leverage ratio supervision and capital adequacy ratio supervision jointly supervise and manage commercial banks. Theoretically, leverage ratio regulation can inhibit the credit expansion of commercial banks and improve bank stability. However, it is also possible to increase the risk preference of commercial banks, and increase the proportion of high-risk assets. It can generate adverse selection problems, and increase the credit risk of commercial banks. This paper selects the data of 16 listed commercial banks in China from 2013 to 2018. The empirical results show that leverage ratio regulation will inhibit the credit expansion of commercial banks, but it will increase the credit risk of commercial banks. It has different impacts on different types of commercial banks.