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Discrete Dynamics in Nature and Society
Volume 2015, Article ID 318732, 9 pages
http://dx.doi.org/10.1155/2015/318732
Research Article

Asymmetric Procyclicality of Chinese Banking and the Countercyclical Buffer of Basel III

1School of Mathematics and Statistics, Lanzhou University, Lanzhou 730000, China
2Sun Yat-sen Business School, Sun Yat-sen University, Guangzhou 510275, China

Received 22 October 2014; Revised 15 December 2014; Accepted 17 December 2014

Academic Editor: Carlo Piccardi

Copyright © 2015 Yufeng Li and Zhongfei Li. This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

Abstract

Since the global financial crisis of 2007-2008, the importance of the procyclicality in the banking sector has been highlighted. One of the Basel III objectives is to promote countercyclical buffers and reduce procyclicality. We apply time-varying copula combined with GARCH model to test the existence of asymmetric procyclicality of Chinese banking. The results show that the procyclicality of Chinese banking is asymmetric, where the dependence between loan and economy growth is more correlated during the decline stage than the rise stage of economy. Based on this asymmetry, we suggest that the authority can use high frequent index for signalling the start point of releasing countercyclical buffer and accelerate the releasing pace to avoid the supply of credit being constrained by regulatory capital requirements in downturns.