An Examination of Inflated Bank Capital and Credit Risks in China

36 Pages Posted: 2 Dec 2012

See all articles by Yishu Fu

Yishu Fu

University of Adelaide - Business School

Shih-Cheng Lee

Yuan Ze University

Xu Lei

affiliation not provided to SSRN

Ralf Zurbruegg

University of Adelaide; Financial Research Network (FIRN)

Date Written: December 2, 2012

Abstract

Since the historical capital regulation by China Banking Regulatory Commission (CBRC) in 2004, Chinese banks have reported remarkable capital growth in their statements. This study examines the impacts of heavily issued and cross-held subordinate debt (SD) towards inflated capital adequacy ratios (CARs) and the credit risks of Chinese banks when they meet regulatory requirements between 2004 and 2009. Our findings suggest that mandatory capital regulations in China have significantly improved bank capital levels despite the widespread window-dressing practice. In addition, the well-capitalised Chinese banks have lowered their credit risks in our sample period. However, the undercapitalised banks may require more strict regulations.

Keywords: subordinate debts, bank capital, risks, regulation, China

JEL Classification: G21, G28

Suggested Citation

Fu, Yishu and Lee, Shih-Cheng and Lei, Xu and Zurbruegg, Ralf, An Examination of Inflated Bank Capital and Credit Risks in China (December 2, 2012). Proceedings of World Business and Economics Research Conference 2012, December 10-11, 2012 , Available at SSRN: https://ssrn.com/abstract=2184082 or http://dx.doi.org/10.2139/ssrn.2184082

Yishu Fu

University of Adelaide - Business School ( email )

10 Pulteney Street
Adelaide, South Australia 5005
Australia

Shih-Cheng Lee

Yuan Ze University ( email )

135, Far-East Rd., Chung-Li
Taoyuan, ROC
Taiwan

Xu Lei (Contact Author)

affiliation not provided to SSRN

Ralf Zurbruegg

University of Adelaide ( email )

233 North Terrace
Department of Finance
Adelaide SA 5005
Australia
+61 8 8303 5535 (Phone)
+61 8 8303 4368 (Fax)

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
108
Abstract Views
781
rank
305,800
PlumX Metrics