Global Banking Accelerate The Transformation Of Capital Intensive Business
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By Himfr Oreitta
Basel Committee on Banking Supervision recently announced that 27 central banks and regulatory agencies have been responsible for the content of Basel II agreement ?, and is expected in 11 months through the G20 summit. Thus, Basel II a new generation ? as the regulatory framework for the international banking community the basic shape the framework of international norms and the global banking industry will inevitably have a profound impact.
The new regulatory standards for individual bank’s capital quality, capital quantity, capital regulatory approach will have a significant impact that can affect the macroeconomic situation, the entire banking system’s credit supply capacity and the global banking business model. In the more stringent regulatory environment under pressure, banks must develop reasonable capital supplement mechanism to achieve the new standards and maintain continuous operations.
Taking into account the requirements of the capital cushion the bank’s core tier one capital adequacy ratio increased to 7%, a capital adequacy ratio increased to 8.5%. Although the data show that the American and European banks with capital adequacy ratio of 10% of the average level, but also the core of a capital adequacy ratio of distance, the new regulations would constitute a significant pressure on structured finance, the current bank in the capital of certain types of assets will be removed, and banks need additional capital assets of high quality supplement.
According to the original provisions of the Basel Capital Accord, an innovative hybrid capital instruments to complement a capital, hybrid debt capital instruments and subordinated debt can add two long-term capital.
The new regulatory capital requirements defined, a capital can only contain ordinary shares (including retained earnings), two future risk capital can not provide adequate protection, can only absorb losses in liquidation under the conditions, and thus the quality of global commercial banks to raise capital enhance the loss of absorptive capacity, must adjust the capital structure, attention to ordinary share capital added, the development of capital accumulation based on internal financing of capital within the source added channels.
Raise capital for, including not only the improvement of capital adequacy standards, but also the adjustment of the scope and quality of capital, which is bound to improve bank capital requirements, it would also force the banks to profit model and the corresponding risk of the assets structure adjustment .
First, the expected profitability of the banking space will be accompanied by lower leverage and asset growth slows and decreases. On the one hand, the core of an ordinary share capital is divided into a higher capital requirements proposed, and the improvement of common stock will increase the capital requirements of banks operating costs, when these costs onto consumers when they put lead to a decline in financing needs; On the other hand, in order to maintain a high level of capital adequacy ratio, the denominator the number of risk-weighted assets must be controlled, which means that operating leverage and asset size reduction, especially in some European and American banking business and the higher leverage assets will shrink substantially.
Under the existing model the gradual narrowing of margins in turn affect the accumulation of capital, thus changing the profitability of the existing model, for low-leverage, low capital consumption, innovative profit model will be the international banking industry, banks in Europe and America in particular, urgent problem.
Second, a direct impact on the level of capital to the bank’s future development. Although published in the new Basel II regulatory leverage ratio was introduced indicators, both the capital adequacy ratio, or leverage, the molecular study are the size of the capital, it can be said of capital will determine the level of the existing regulatory framework Under the Bank’s development model. The capital adequacy of banks more to accelerate the expansion of credit to carry out mergers and acquisitions, to seize the market is relatively more room to maneuver, but for lack of capital for future business development bank will be subject to various restrictions.
Whether or not capital adequacy, optimal allocation of capital improvements, capital intensive business, steering the business model of low capital consumption, improve return on capital will be the future direction of development of the banking industry.
Since the financial crisis, the Chinese banking system, increasing the risk of regulatory requirements, respectively, large banks and small and medium state-owned bank’s capital adequacy ratio of 8% from the previous increase to 11% and 10%, some large banks increased to 11.5% . According to China Banking Regulatory Commission released at the end of June 2010 the relevant data, the domestic large, medium and small types of banks average capital adequacy ratio reached 11.1%, core capital adequacy ratio of 9%, core capital to total capital ratio of more than 80% From the quantitative point of view, beyond the minimum requirements of international capital regulation. For the 3% leverage ratio requirements for businesses engaged in low-leverage China’s banking sector is much higher than the natural regulation of the level of international requirements.
Therefore, the international bank capital regulatory reform in the short-term impact on domestic banks is limited, but long-term effects of concern, in particular, to work together to adjust and perfect the system of domestic bank capital regulation, including the number of standards, quality standards, schedules, and other regulatory measures to improve effectiveness of capital regulation. Meanwhile, to encourage new capital in the banking system to speed up innovation and regulatory system, and steadily improve the efficiency and leverage the use of capital and reduce the profit model over-reliance on capital, promoting capital formation saving business model, and actively expand the variety of capital additional channels.
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