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Capital regulation, monetary policy and asymmetric effects of commercial banks' efficiency

Capital regulation, monetary policy and asymmetric effects of commercial banks' efficiency Purpose – Owing to the importance of the efficiency of commercial banks, the aim of this paper is to find the relationship between capital regulation, monetary policy and the asymmetric effects of the commercial banks' efficiency. Design/methodology/approach – First, the paper makes a static profit model of commercial banks with double constraints and then makes a proposition with numeric simulation. Findings – In this paper, the author finds it unreasonable to calculate the commercial banks' cost and profit efficiency by SFA (DEA) directly, as there is no evidence that indicates the linearity relationship among them. Hence, more complicated solutions should be introduced. Research limitations/implications – The rate of non‐performing loans (NPL) is inversely proportional to the commercial banks' cost and profit efficiency and capital adequacy ratio (CAR) and statutory reserve ratio (SRR) show a nonlinear relationship between commercial banks' cost and profit efficiency. Hence, the paper defines the different influences of commercial banks' efficiency imposed by CAR and SRR as the asymmetric effects of commercial banks' efficiency. Practical implications – The nonlinear relationship is found based on improved Kopecky and VanHoose, so excessive regulation has harmful effects on the commercial banks. The reasonable capital regulation and other prudential supervision measures should be emphasized. Originality/value – First, the paper gets its proposition through the improved KV model, which displays a new perception on analyzing this problem. Second, the nonlinear relationship is discovered by this new model and the empirical results show the nonlinear relationship further. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png China Finance Review International Emerald Publishing

Capital regulation, monetary policy and asymmetric effects of commercial banks' efficiency

Yong Li; Mancang Wang
China Finance Review International , Volume 2 (1): 22 – Jan 27, 2012
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22 pages

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Publisher
Emerald Publishing
Copyright
Copyright © 2012 Emerald Group Publishing Limited. All rights reserved.
ISSN
2044-1398
DOI
10.1108/20441391211197438
Publisher site
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Abstract

Purpose – Owing to the importance of the efficiency of commercial banks, the aim of this paper is to find the relationship between capital regulation, monetary policy and the asymmetric effects of the commercial banks' efficiency. Design/methodology/approach – First, the paper makes a static profit model of commercial banks with double constraints and then makes a proposition with numeric simulation. Findings – In this paper, the author finds it unreasonable to calculate the commercial banks' cost and profit efficiency by SFA (DEA) directly, as there is no evidence that indicates the linearity relationship among them. Hence, more complicated solutions should be introduced. Research limitations/implications – The rate of non‐performing loans (NPL) is inversely proportional to the commercial banks' cost and profit efficiency and capital adequacy ratio (CAR) and statutory reserve ratio (SRR) show a nonlinear relationship between commercial banks' cost and profit efficiency. Hence, the paper defines the different influences of commercial banks' efficiency imposed by CAR and SRR as the asymmetric effects of commercial banks' efficiency. Practical implications – The nonlinear relationship is found based on improved Kopecky and VanHoose, so excessive regulation has harmful effects on the commercial banks. The reasonable capital regulation and other prudential supervision measures should be emphasized. Originality/value – First, the paper gets its proposition through the improved KV model, which displays a new perception on analyzing this problem. Second, the nonlinear relationship is discovered by this new model and the empirical results show the nonlinear relationship further.

Journal

China Finance Review International – Emerald Publishing

Published: Jan 27, 2012

Keywords: Capital regulation; Monetary policy; Asymmetric effects; Commercial banks efficiency; Numerical analysis

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