Online from: 2011
Subject Area: Accounting and Finance
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|Title:||Capital regulation, monetary policy and asymmetric effects of commercial banks' efficiency|
|Author(s):||Yong Li, (Economic and Management Department, Northwest University, People's Republic of China), Mancang Wang, (Economic and Management Department, Northwest University, People's Republic of China)|
|Citation:||Yong Li, Mancang Wang, (2012) "Capital regulation, monetary policy and asymmetric effects of commercial banks' efficiency", China Finance Review International, Vol. 2 Iss: 1, pp.5 - 26|
|Keywords:||Asymmetric effects, Capital regulation, Commercial banks efficiency, Monetary policy, Numerical analysis|
|Article type:||Research paper|
|DOI:||10.1108/20441391211197438 (Permanent URL)|
|Publisher:||Emerald Group Publishing Limited|
|Acknowledgements:||JEL classification – E51, E32, G28. The paper is a staged achievement of the National Natural Sciences (No. 71072160), thanks to the financial support of the key project (Nation Economics) of Shaanxi province. The authors are grateful to the anonymous referees for their helpful comments and suggestions. The view is of the authors, as of course are any errors.|
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.
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