Bank Capital, Adjustment and Ownership : Evidence from China

We investigate ownership effects on capital adjustment in China from 2000 - 2012 and find that state-owned banks hold higher capital than other ownership types. Foreign banks are more highly capitalized than local non-state banks but under-capitalized compared with bigger non-state banks with a nationwide presence. Foreign banks adjust risk-weighted capital towards their optimal targets at a slower speed than domestic banks, while foreign minority ownership speeds up the adjustment process. Capital is positively influenced by asset diversification, profitability and liquidity risk, but negatively affected by bank market power. Capital ratios typically co-move with the business cycle