An Empirical Analysis of the Relationship Between Capital Regulation and Risk of Listed Commercial Banks

Capital regulation has caused a significant impact on the development of various business operations of listed commercial banks, while also decreasing their risk and enhancing their risk-bearing capacity. This paper uses data from 41 Chinese listed commercial banks from 2010 to 2019. To make the measured capital regulation more realistic, the author uses capital adequacy ratio and controls for 7 bank characteristic variables. The author uses fixed effect model and dynamic panel data model to empirically analyze the influence of the capital regulation on the risk of listed commercial banks. Heterogeneity study is performed by the author based on the size of commercial banks. The empirical study finds that: Firstly, the capital regulation significantly reduces the risks faced by listed commercial banks. Secondly, the influence of capital regulation on the risks of listed commercial banks shows a lag effect. Thirdly, different sized banks are affected differently by capital regulations. This study will help regulators set more effective capital requirements to ensure the stability of the entire financial system. Additionally, it will help commercial banks to establish a long-term and stable capital replenishment mechanism to ensure that capital levels continue to meet regulatory requirements and reduce risk levels.