Construction and Empirical Research on the Dynamic Provisioning Model of China’s Banking Sector under the Macro-Prudential Framework

Xiaofeng Hui and Aoran Zhang
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Xiaofeng Hui: School of Economics and Management, Harbin Institute of Technology, Harbin 150001, China
Aoran Zhang: Antai College of Economics and Management, Shanghai Jiao Tong University, Shanghai 200030, China

Sustainability, 2020, vol. 12, issue 20, 1-26

Abstract: Since the international financial crisis in 2008, to achieve the political goal of financial stability, academic circles, financial industry, and regulatory authorities worldwide have deeply reflected on the current economic regulatory theories and policy adjustment tools through introducing the macroprudential policy. The dynamic provisioning system is a counter-cyclical policy tool in the macro-prudential adjustment framework widely used in the world. This paper uses the binary Gaussian Copula function to combine the measurement method of the default distance in the contingent claims analysis method with the risk warning idea based on the Probit model and proposes the contingent claims analysis (CCA)–Probit–Copula dynamic provisioning model based on nine forward-looking indicators. Based on China’s actual conditions, this model solves present problems faced by the current dynamic provisioning system in China, such as insufficient historical credit data reserves of commercial banks, excessive reliance on subjective judgments, and conflicts with the current accounting system. Moreover, this model can put forward corresponding counter-cyclical provisioning requirements according to the influence degree of macro-cyclical factors to different commercial banks’ own default risk, which not only takes into account the security and liquidity of commercial banks, but also ensures their profitability and competitiveness. Based on the empirical test of historical data from listed commercial banks in China, it proves that the dynamic provisioning requirements proposed in this model can effectively adjust the overall credit scale of the banking industry in counter-cyclical ways, thereby achieving the policy goals of counter-cyclical adjustment under the macro-prudential framework and maintaining the security of China’s financial system and the sustainable development of the macroeconomy.

Keywords: dynamic provisioning; macroprudential supervision; counter-cyclical adjustment (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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