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Journal of Banking Regulation

, Volume 8, Issue 3, pp 262–289 | Cite as

The new capital accord and the Chinese banking industry

  • Zhuang Cai
  • Peter WhealeEmail author
Paper

Abstract

With the 1999 publication of the Basel Committee's proposal for a New Capital Accord, Basel II, to replace the 1988 agreement, Basel I, an attempt has been made to address the problem of correlating banks' risks and their management with capital requirements. The Basel II framework, finalised in June 2004, is designed to improve risk management by using models based on past performance to help set the amount of capital banks are required to hold by regulators, with the purpose of improving the efficiency of the global allocation of capital. The objectives of this study are to investigate the implications of the New Capital Accord for the banking community and, in particular, the response to these new international banking rules of the Chinese banking industry. The authors formulate three propositions, namely, Basel II will improve risk management; Basel II will improve capital allocation efficiency; and compliance with advanced risk management systems is predicated on Basel II and is biased in favour of the large banks. Following an extensive analysis of the New Capital Accord, evidence was assembled with which to evaluate these three propositions by gathering primary data from risk managers in the Chinese banking industry by means of a semi-structured tele-interview survey of 24 Chinese banks. The findings of the study strongly support the first two propositions and partly support the third proposition.

Keywords

banking regulations Basel I & II Chinese banking risk-management 

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Copyright information

© Palgrave Macmillan Ltd 2007

Authors and Affiliations

  1. 1.Harrow Business SchoolMiddlesexUK

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