Research on the Impact of Heterogeneous Leverage Regulation on the Risks of China’s Commercial Banks

Abstract

Based on the panel data of 75 commercial banks in China from 2008 to 2017, this paperuses four methods: mixed estimation, fixed effect, differential moment estimation and system momentestimation, to examine the impact of leverage ratio regulation on commercial bank risks and theinfluence of heterogeneity of commercial banks on regulatory effectiveness. We found that, first, thesupervision of leverage ratio effectively reduces the risks of Chinese commercial banks; second, theheterogeneity of Chinese commercial banks will lead to differences in regulatory effects. For banksthat are listed with lower capital levels and have higher risk preference, leverage ratio regulationhas a stronger inhibitory effect on bank risks. On this basis, it is recommended that the regulatorsimplement differentiated supervisory measures for commercial banks with different capital levels andrisk reference while strengthening supervision of leverage.