突闻蚂蚁金服上市受阻,有感而发,翻出六年前的一篇硕士论文,关于对银行监管和巴塞尔协议III的一些看法,当年血气方刚之时,竟放了和马云一样的厥词,一声叹息,太难了,都太难了啊。。。
Critically discuss the differences between the capital adequacy rules under the 2013 Administrative Measures for the Capital of Commercial Banks (for Trial Implementation) and the Basel III capital adequacy standards and assess whether China should fully adopt and implement Basel III
The 2008 global financial crisis moved the preparation of the New Basel Capital Accord, known as Basel III, higher up on the global regulatory agenda. In Sep 2010, regulators from most countries approved and released Basel III.[1]
As one of the largest emerging economies, China has strong commitment to global regulatory reform and standards for the purpose to build a sound financial system.[2] Thus, in June 2012, the CBRC issued the State Council-approved Capital Rules named the Administrative Measures for the Capital of Commercial Banks (for Trail Implementation) adopting the risk-based Basel III capital framework. In October and November 2012, supplementary documents were published, including the Instructions on CAR reporting, as well as additional regulatory documents regarding the transition to Basel standards and the choice of capital instruments.[3]
Compared to Basel II, the most outstanding feature of Basel III is its requirement of higher quantity of capital. It gives a more stringent definition and qualifying criteria for Tier 1 and Tier 2capital. In detailed, the common equity Tier 1 capital has been raised to atleast 4.5% of RWA, which is significantly higher than the 2% under the Basel III. Besides, the capital conservation buffer of 2.5% and the counter-cyclical capital buffer of 0-2.5% have been added to defense against the potential risks.
In the aspect of the capital adequacy rules, the Chinese regulations actually go beyond the minimum Basel standards. For example, the CBRC applies a CET1 ratio requirement including capital conservation buffer of 7.5% (5% and 2.5%respectively, stipulated in the article 23), instead of 7% (4.5% plus the capital conservation buffer of 2.5%) as required by Basel III. In addition, the CBRC applies the minimum capital requirements to all commercial banks in China, including small and non-internationally active banks.[4]
Turning to the question that whether China should fully adopt and implement Basel III, my own suggestion is that China shall not implement Basel III in such a hurry, even though the main purpose ofthe CBRC is to rely on it to clean up the banking sector. In other word, the characteristics of China's financial system should be considered when formulating regulatory policies.
In theory, as a resource configuration tool, the fundamental objective of the financial industry, especially the banking sector, is to accelerate the economic growth. In order to achieve this purpose, it should be ensure that enough credit flows into the real economy. Moreover, under China’s current economic system, the real economy conversely supports the stability of the financial system, which will be explained in detail below. However, the excessively harsh standard of capital adequacy ratio will undoubtedly cut down the real economy’s funding sources from bank credits and may trigger a domino effect in the financial system.
From the perspective of the relationship between the financial system and the real economy, firstly, it should be recognized that China’s economy and financial system is under transition from a planned towards a market-driven and price-based system[5] and the current economy and financial system still has not get rid of the shadow of the planned economy. Notwithstanding from a highly centralized planned economy of the administration instruction system, the financial system reform has come a long way in the last 30 years, the financial marketization is yet to be completed. As a result, the government is incapable of efficiently intervene in the operation of the financial system due to lack of effective market-driven means but rely on some measures with hue of planned economy and administration instruction.
Actually, some direct Intervention measures are mainly used for the allocation of credits and adjustment of financial regulation in the Chinese financial system according to the demand of real economy. For instance, the PBOC timely utilize window guidance on commercial bank loans to calm down the commercial banks’ lending for real estate businesses.[6]Meanwhile, the real economy's large productivity will give investors the sense of security and thus attract more capital to ensure the stability of the financial system.
Besides, because the financial market is yet to be mature, the complexity of the financial system is not high and crisis transmission channels are relatively less in number. In addition, the CBRC has been cautious in allowing banks to engage in complex financial activities.[7] So, compared with the U.S., where financial derivatives are reasonably developed, the internal systematic risk of China’s financial system. Thus, in conclusion, the systematic risk will be most likely to be triggered by the slowdown in economic growth. This is the reason why the State Council set forth the objective of achieving 8% growth rate of the GDP.
However, imposing the Basel III on the commercial banks to strengthen the supervision may render the economy cooldown. While the Chinese banking system is growing rapidly in last 30 years, comparing with banks of developed countries, the core of its banking business remains traditional, concentrated on credit products and services. This isreflected in a high proportion of loans relative to total assets and a relatively high share of RWA for credit risk as percentage of total Risk-weighted assets (RWA).[8] Other than that, the source of profits is simplex. China’s banks depended heavily on income from net interest margins and the proportion of the spreads relative to overall profits has been high by international standards due to government protection, which is higher than 80%., this type of growth has required significant capital, which means banks face increasing pressure due to Basel III’s stricter capital supervision rules.[9]
Under the Basel III, the scale of RWA has direct influence on the capital adequacy ratio of banks. Thus, they'll be forced to hold more capital than in the past in case of potential losses and the loan fund will be cut down. Additionally, another source of pressure for Chinese banks is declining savings rates caused by inflation rates exceeding interest rates offered by banks. This will exert liquidity pressure on banks as they implement Basel III.[10] Consequently, a phenomenon of “money shortage” of commercial banks arises from time to time in recent years in China. This shortage of liquidity is another driven force for the commercial banks cut down the credit quota further.
The reduction of credit quota means that the real economy, which has been already in absence of funding, may face with the risk of being starved. Combining with the conclusion made above that the systematic risk of the financial system will be most likely to be triggered by the slowdown in economic growth, imprudent implementation of the Basel III may trigger a financial shock in the banking sector and thereby affect the other financial sectors.
Nonetheless, some new changes introduced by the Basel III such as the use of a simple leverage ratio index are worthwhilefor reference. In recent years’ high-speed development of the inter-bankmarket, some commercial banks tend to obtain funding from other financial institutions at excessively low cost by interbank borrowing and make higher profits in other market such as shadow banking through regulatory capital arbitrage. Under an increasingly stringent regulatory environment, the interbank borrowing has gradually developed into the key business or even the core business of many large and medium-sized banks.[11]
However, by introducing the leverage ratio index, commercial banks are prohibited from excessive speculation on off-balance sheet activities, which means that the ubiquitous regulatory capital arbitrage of banks will be kept within limits. Hence, capital will be more inclined to flow into the real economy so as to achieve the fundamental objective of the banking sector to support and accelerate the economic growth as a resource configuration tool.
[1] See Accenture 2011 Beyond Basel III: The future of high performance in Chinese banks. P3 http://www.accenture.com
[2] See BSBC 2013 Assessment of Basel III regulations – China P5 http://www.bis.org
[3] See BSBC 2013 Assessment of Basel III regulations – China P10 http://www.bis.org
[4] See BSBC 2013 Assessment of Basel III regulations – China P14 http://www.bis.org
[5] See Michael Geiger 2008(Feb) INSTRUMENTS OF MONETARY POLICY IN CHINA AND THEIR EFFECTIVENESS: 1994–2006 P2 http://www.unctad.org
[6] See Michael Geiger 2008(Feb) INSTRUMENTS OF MONETARY POLICY IN CHINA AND THEIR EFFECTIVENESS: 1994–2006 P12 http://www.unctad.org
[7] See BSBC 2013 Assessmentof Basel III regulations – China P7 http://www.bis.org
[8] See BSBC 2013 Assessmentof Basel III regulations – China P7 http://www.bis.org
[9] See Accenture 2011 Beyond Basel III: The future of high performance in Chinese banks. P2 http://www.accenture.com
[10] See Accenture 2011 Beyond Basel III: The future of high performance in Chinese banks. P2 http://www.accenture.com
[11]See http://finance.sina.com.cn/money/bank/bank_hydt/20130623/085515884660.shtml