TITLE:
Does Bank Liquidity Matter in the Loan Supervision Effect of Bank Capital Adequacy Ratio?
AUTHORS:
Jie Gao, Xingfeng Li
KEYWORDS:
Liquid Assets Ratio, Capital Adequacy Ratio, Bank Loans, Loan Commitments
JOURNAL NAME:
Modern Economy,
Vol.12 No.4,
April
26,
2021
ABSTRACT: The requirement of bank’s capital adequacy ratio did
not prevent the occurrence of financial risk, and then the requirement of
bank’s liquidity came into view. Then, the impact of bank capital and liquidity on bank loan changes is a real
problem faced by regulators and banks themselves. In this context, we study
whether the impact of capital adequacy ratio on loan changes is related with
the bank’s liquid asset ratio by constructing theoretical model and empirical
analysis method. Our study first shows that the impact of bank’s capital
adequacy ratio on loan changes is related with liquid asset ratio. We find that
off-balance sheet loan commitments offset the parts impact of liquid asset
ratio and capital adequacy ratio on loan changes, and small and medium-sized
banks are less affected by liquid asset ratio. Under the condition that banks
hold certain liquid assets, bank’s liquid asset ratio is positive with the
influence of the capital adequacy ratio on loan changes. Finally, we put
forward suggestions from the perspective of bank risk management and bank capital
and liquidity supervision.