Research on the Effectiveness of the Capital Adequacy Ratio Regulation of China's City Commercial Banks

Capital adequacy ratio(CAR) is an important indicator to measure the security and robustness of commercial banks. Regulation on CAR is becoming the core of banks supervisions all over the world Analysing with the application of the econometric model on the capital adequacy regulation effectiveness of 15 city commercial banks (CCB) , this paper points out that a significant positive correlation could be found between CAR and return on assets(ROA) but there was no significant negative correlation between CAR and ratio of non-performing loan. That is to say, the regulation effectiveness is insufficient in the aspect of reducing the risk of banks. This paper suggests adopting the elastic capital adequacy ratio, improving the banking information disclosure system, and exploring the supervision system which can transform the external supervision into internal constraint.