An examination of inflated bank capital and credit risks in China

Yishu Fu Business School, University of Adelaide Email: yishu.fu@adelaide.edu.au

Shih-Cheng Lee Faculty of Finance, Yuan Ze University and Business School, University of Adelaide Email: sclee@saturn.yzu.edu.tw

Lei Xu* Business School, University of Adelaide Email: xulei86531@hotmail.com

Ralf Zurbruegg Business School, University of Adelaide Email: ralf.zurbruegg@adelaide.edu.au

Abstract Since the historical capital regulation by China Banking Regulatory Commission (CBRC) in 2004, Chinese banks have reported remarkable capital growth in their statements. This study examines the impacts of heavily issued and cross-held subordinate debt (SD) towards inflated capital adequacy ratios (CARs) and the credit risks of Chinese banks when they meet regulatory requirements between 2004 and 2009. Our findings suggest that mandatory capital regulations in China have significantly improved bank capital levels despite the widespread window-dressing practice. In addition, the well-capitalised Chinese banks have lowered their credit risks in our sample period. However, the undercapitalised banks may require more strict regulations. Key words Subordinate debts, bank capital, risks, regulation, China JEL Codes G21 G28 * Corresponding author. Postal address: Business School, University of Adelaide, 10 Pulteney Street, Adelaide, SA 5005, Australia Tel: 61-8-83137272 Fax: 61-8-82234782

Electronic copy available at: http://ssrn.com/abstract=2184082

1. Introduction

Repeated banking crises during the past decades have pushed governments to attend closely the capital and behaviour of banks. Prior to 1988, regulators across the world tend to set the minimum ratio between capital and total assets in the hope that capital requirements could enhance the stability of banking systems. One milestone is Basel I (1988) which develops a riskweighted framework and defines Tier 1 and Tier 2 capital. The world-wide adoption of Basel I has resulted in Basel II (2004) in an attempt to set risks and management requirements in an international background. The recent global financial crisis (GFC) in 2007 has brought renewed attention to banking regulation and refined the regulatory benchmarks through Basel III (2010), which focuses on the benchmarks over capital quality, risk coverage and liquidity.

However, despite continuously tightened regulatory requirements, banks may have exploited the risk-weighted framework in Basel Accords. One example can be the innovative usage of subordinate debts by Chinese banks. The effective capital level of Chinese banks diminishes when they have cross subordinate debt holdings to seemingly increase individual banks capital cover. This widespread bank behaviour also increases the systematic instability of the system. Through the improved capital quality requirement, Basel III has excluded such practice with subordinate debts from effective Tier 2 capital. However, banks can still seek new unconventional practice to circumvent the tightened regulations.

The growing importance of China in the new financial map after the GFC requires more study over its banks. The banks control over 90% of aggregate financial resources in the second largest world economy. More interestingly, the banks seem unaffected by worldwide financial crises during the past decades. A literature review suggests that there are scarce of studies over bank capital and risks in this country. Existing studies have focused on the non-performing loans (NPLs) among Chinese banks (such as Bonin and Huang, 2001; Huang, 2002; Nanto and Sinha, 2002; Gamble, 2003; Gordon, 2003; Kwong and Lee, 2005; Xiao, 2006; Dobson and Kashyap, 2006; Ma, 2006; Xu and Lin, 2007; Garca-Herrero et al., 2009). A few studies have extend the discussion to the operational risks, bank efficiency and state ownership reforms of Chinese banks

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(such as Heilmann, 2005; Xie, 1999; Allen et al., 2005; Ferri, 2009; Garca-Herrero et al., 2009; Fu and Heffernan, 2009; Matthews and Zhang, 2010; Shan and Xu, 2012; Ariff and Can, 2012; Allen et al., 2012). In comparison to the considerable literature that examines the effects of capital requirements among developed countries, little is known about the behaviour of Chinese banks in response to mandatory capital requirements and their true capital levels.

The examination of Chinese banks capital and risk behaviour may be of interest in several aspects. First, this paper provides initiative empirical evidence on banking behaviour in todays second largest economy in response to its historical capital regulation in the country. Second, this study seeks to find reliable measurements of real capital status of Chinese banks. Due to the limited size and scope of the capital markets in China, banks may have relied heavily on issuing and cross-holding each others subordinated debts so as to meet the regulatory capital requirements. Although this window-dressing technique boost reported CARs, banks may have not solved the fundamental problem of capital inadequacy at least to certain extent. Furthermore, this banking practice increases the systemic risks. Third, this study may provide initial evidence to explain a puzzle that despite the remarkable capital ratios reported by Chinese banks their thirst for additional capital seems unquenched. Even when banks report CARs well above the mandatory benchmarks, they still take all possible means to raise additional capital, such as world-record IPOs, additional shares and rights, bringing noticeable impacts over stock markets in the country. Fourth, this study over bank capital and risks may lead to further studies over listed companies in China. Nowadays Chinese banks weigh over half of the market capitalisation in the stock market and contribute to around 70% of total profits of all listed companies. We can see more studies over the performance of Chinese listed companies in recent years, such as Wang (2005) and Kao et al. (2009). However, most of these studies are focused on non-finance companies by excluding the banks from their samples. Fifth, Chinese banks may differ from US banks in their ability to adjust capital and risk. The regulatory pressure implied by capital requirements may be stronger in China since it is the only country seemingly immune from the recent GFC. In the meantime, most public-listed banks in China are either directly or indirectly state-owned banks (SOB) and consequently have access to such government supports as capital injections or bailouts. Sixth, effectiveness of capital regulation in the country can be examined. Only after joining the World Trade Organization (WTO) has China started imposing

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international standards over domestic institutions. Allen and Carletti (2008) suggest reducing the amount of non-performing loans among the major banks to normal levels is the most important task for the reform of financial system in the short run while the further development of Chinas financial market is the most critical task in the long run. Berger et al. (2009) believe that minority foreign ownership shows the significantly improved efficiency in banks performance. However, there has been a surprising lack of study in evaluating the effectiveness of government regulations over its banks. Therefore, the important implications of this initial study may start similar discussions for forthcoming researches.

In this study, we advance the concept of capital ratios to real capital ratios by eliminating the effects of cross-holding SD among Chinese banks. Moreover, based on the simultaneous equations model established by Shrieves and Dahl (1992), Rime (2001), and Van Roy (2008), we analyse the corresponding adjustments in capital and risk by Chinese banks as they approach the minimum regulatory capital level. Interestingly we find that mandatory capital regulations in China have significantly improved bank capital levels despite the widespread window-dressing practice. The well-capitalised Chinese banks have additionally lowered their credit risks in our sample period when they meet regulatory capital requirements. However, the undercapitalised Chinese banks may require more strict regulations.

This paper is structured as follows. Section 2 reviews the theoretical, empirical and latest literature about bank capital requirements. Section 3 summarises the developments of capital requirements in China, describes the information about SD issuance among Chinese commercial banks and introduces the concept about the real capital ratio. Section 4 presents data and methodology. Section 5 provides the empirical results. Section 6 concludes the paper.

2. Capital requirements and bank behaviour: Review of Literature

2.1 Mean-variance framework and option model There have been two strands of literature on banks risk levels. One strand focuses on the utilitymaximizing banks and investigates the impacts of higher mandatory capital ratios on banks

portfolio risks while the other strand explores the value-maximizing banks and reaches the opposite conclusions.

The strand of literature focusing on utility-maximizing banks uses the portfolio approach in a mean-variance framework (Pyle, 1971; Hart and Jaffee, 1974). Within this framework, Koehn and Santomero (1980) examine the impacts on banks portfolio risk when the regulator increases the minimum capital to asset ratio. They find that the introduction of mandatory capital ratios lead banks to shift their portfolio into riskier assets. In addition, this reshuffling effect may become larger for banks that initially have more risky assets per unit of capital.

However, Furlong & Keeley (1989) and Keeley & Furlong (1990) challenge the above conclusions. Their studies examine the impacts of more stringent capital regulation on bank asset portfolio risk for value-maximizing banks based on an option model. Their results indicate that incentives for value-maximizing banks to increase asset risk decline as the capital increases. Their studies also suggest that the mean-variance framework is inappropriate because it does not adequately explain the banks investment opportunity set by ignoring the option value of deposit insurance and the possibility of bank failure.

Unfortunately there are few studies providing non-US evidence over the changes of bank capital and risks. Using confidential UK data, Ediz et al. (1998) find that banks adjust their capital levels more than the difference between the current and the target level, implying that banks overset their targets each year. Rime (2001) focuses on Swiss banks and provides a simultaneous measurement over non-US banks. Heid et al. (2004) examine the relationship between capital and risk levels by investigating German banks over 1993 to 2000. Their results suggest that banks with low capital buffers tend to rebuild a sufficient capital buffer by decreasing risks and increasing capital simultaneously. By contrast, banks with high capital may try to maintain their capital buffer by increasing risk when capital increases. From the option-pricing perspective, Sheldon (1996) examines the risk effects of capital rules within G-10 countries and figures out that Basel I does not have risk-increasing impact on banks portfolio. However, very small banks are selected to represent the sample from certain countries.

In short, economic theories are ambiguous on whether imposing tightened capital leads banks to hold riskier asset in their portfolio. Existing studies additionally indicate that the market discipline may also have impacts on the banks response of capital and credit risks to the capital regulations (Basel Committee on Banking Supervision 1999).

2.2 Adjustment cost and buffer theory

Provided with rigidities and adjustment costs, banks would never hold more capital than that required by the regulators or by the market. However, banks may not be able to adjust capital or risk instantaneously because of the adjustment costs or illiquid markets. In the case of asymmetric information, raising additional equity could transmit a negative signal to the market (Myers and Majluf, 1984), rendering banks unable or reluctant to react to negative capital shocks instantaneously. Nevertheless, a breach of the regulation could trigger costly supervisory actions, or even the banks closure. Consequently banks have incentives to hold a buffer of excess capital as an insurance against a violation of mandatory minimum capital requirement, especially if the banks capital ratio is quite volatile. Since raising capital is relatively costly compared to raising insured deposits, this trade-off determines the optimum capital buffer (Milne and Whalley, 2001). According to the buffer theory, banks would try to maintain a capital buffer in excess of the regulatory minimum so as to avoid a breach of the minimum capital requirements. Therefore, banks with high capital buffers would aim at holding their capital buffers while banks with low capital buffers would aim at rebuilding an appropriate capital buffer.

2.3 Recent studies about the bank capital regulation Apart from the increased capital and banks risk-taking behaviour, recent studies have taken into account other factors, such as the banks financial performance, profitability and efficiency, in the examination of capital regulation impacts. Lin et al. (2005) examine the relationship between capital adequacy ratio, insolvency risk index and financial performances. Altunbas et al. (2007) analyze the relationship between capital, risk and efficiency for European banks. Ngo (2008) explores the relationship between banks capital-risk decisions and their profitability. Deelchand and Padgett (2009) discuss the performance and capital of cooperative banks in Japan. Fiordelisi

et al. (2011) analyze the inter-temporal relationships among banks efficiency, capital and risktaking behaviour in the European Union countries.

Bank capital cover is also considered cyclical in nature. The macro-economic impacts brought about by the increased capital standards are discussed in some recent studies. For example, Nachane et al. (2006) suggest that whether monetary policy can be more or less effective in influencing bank lending depends on a number of factors, such as whether banks are constrained under the revised Basel Accord, the quality of bank loans and the liquidity of banks balance sheets. Heid (2007) examines the issues of capital-induced lending cycles and the pro-cyclical effects on the macro-economy. Jokipii and Milne (2008) find that capital buers co-move negatively with the business cycle for banks in the EU but co-move positively for banks in the accession countries.

3. CBRC Capital regulation and SD issuance in China

Capital requirement is a main banking supervisory instrument in China. For undercapitalised banks, the CBRC has the authority to require the commercial bank to suspend all but low-risk activities, suspend the building of new branches, and stop introducing new products or services. For significantly undercapitalised banks, the CBRC can require removal of their senior management, take over or even close the banks.

3.1 Recent developments in the capital regulation over Chinese banks

The capital inadequacy of Chinese banks has been subject to criticism for decades (such as Xie, 1999; Dobson and Kashyap, 2006; Xu and Lin, 2007). In 1994, the Peoples Banks of China (PBC)1 set assessments to commercial banks including capital ratios. These capital ratios were later covered by the Commercial Bank Law (1995). In the following years the PBC even worked out more details on capital ratios allocating risk weights to various assets. However, these capital ratios were introduced as reference to Chinese banks rather than mandatory regulation. Few banks treated seriously the capital ratios as important financial indicators. It was lack of
1

Before the establishment of CBRC in 2003, PBC took charge of the supervision of Chinese banks.

mandatory regulation that resulted in the poor capital ratios when China joined the WTO in 2001.

China established the CBRC in 2003 to strengthen its finance industry and to avoid similar bank failures in surrounding countries during the Asian Financial Crisis. The CBRC historically introduced mandatory regulations over bank capital in the country in 2004. Based on both Basle I and II, the CBRC bank capital regulations are curtailed for the Chinese banking sector. According to the CBRC capital rules2, the measurement of bank capital adequacy ratios in China can be shown as:

Capital adequacy ratio (CAR)

= (total capital deductions) / (risk-weighted assets + 12.5 * capital charge for market risk) = (total capital deductions) / (credit risk-weighted assets + market risk-weighted assets) = (total capital deductions) / Total risk-weighted assets
Core capital adequacy ratio (CCAR)

(1)

= (core capital deductions) / (risk-weighted assets + 12.5 * capital charge for market risk) = (core capital deductions) / (credit risk-weighted assets + market risk-weighted assets) = (core capital deductions) / Total risk-weighted assets
(2)

It is worth mentioning that in these equations, risk-weighted assets literally represent credit riskweighted assets. Chinese banks only disclose credit risk-weighted assets, market risk capital and total risk-weighted assets (the sum of credit risk-weighted assets and market risk-weighted assets) in their financial reports without reporting operational risk-weighted assets. In other words, the total risk-weighted assets of Chinese banks do not include operational risk-weighted assets under CBRC regulations.

Through various regulatory decrees and documents, such as the Regulation Rules over Foreign Banks in China (2004)3 , the Provisional Rules over Risk Evaluation of Joint-Stock Commercial

2 3

CBRC 2004 No.2 Decree, Regulation Governing Capital Adequacy of Commercial Banks, February 23, 2004. CBRC 2004 No. 4 Decree, Regulation Rules over Foreign Banks in China, July 26, 2004, Article 17

Banks (2004)4, the Guide of Corporate Governance and Relevant Regulation over State-Owned Commercial Banks (2006) 5 , and the Notice of Capital Adequacy Information Disclosure by Commercial Banks (2009)6, the CBRC further strengthens capital adequacy requirements. In the meantime, the CBRC capital requirements seem stricter than Basel Accords. In December 2009, minimum CAR of 11% is imposed onto the largest Chinese banks7, and 10% for the small-andmedium-sized banks.

In response to the tightened capital regulations, Chinese banks have since reported sharp increased CARs. The CBRC statistics disclose the average CAR of -2.98%8 in 2003 (with 8 small-sized banks or 0.6% of all banks in the country meet Basel I capital requirement). However, by 2009 all 239 commercial banks in the country have met CBRC minimum capital requirements when their average CAR reach 11.4%, well above Basel I & II threshold. By 2010 all commercial banks in China have reported the average 12.2% CAR and 10.1% Core CAR9.

3.2 SD issuance in China

Provided with limited size and scope of capital markets in China, it is doubtful that Chinese banks could achieve such remarkable capital improvements from negative level to above 10% under tightened regulations. Although traditional approaches (such as capital injection or bailouts by the government, issuing shares or convertible bonds, and offloading NPLs) do not bring much controversy to bank capital, Chinese banks may have inventively issued SD above and beyond reasonable amount to window-dress their capital ratios.

Table 1 summarises the SDs issued by Chinese banks between 2004 and 2009. We can see that the large Chinese banks are the major issuers of SD in the interbank market. By comparison, the aggregate SDs issued by small-and-medium-sized banks is less than half that of the four large
4 5

CBRC 2004 No. 3 Document, Provisional Rules over Risk Evaluation of Joint-Stock Commercial Banks, February 22, 2004 CBRC 2006 No. 22 Document, Guide of Corporate Governance and Relevant Regulation over State-owned Commercial Banks, April 24, 2006, Article 20 & 23 6 CBRC 2009 No. 97 Document, Notice of Capital Adequacy Information Disclosure by Commercial Banks, November 7, 2009 7 They are the Industrial and Commercial Bank of China (ICBC), the Agricultural Bank of China (ABC), the Bank of China (BOC), the China Construction Bank (CCB) and the Bank of Communications (BOCM). The ABC is listed in 2010 and therefore not included in this study. 8 This happens when the difference between the capital and its corresponding deduction, namely net capital, is less than zero. 9 Banking Capital Statistics, February 18th, 2011, CBRC Website

sized banks. As shown by Panel A, CCB ranks the top among the large banks in the amount of SD outstanding. SD among all the listed banks increases sharply across the 2004-2009 sample period. Panel B shows SD balance of small-and-medium-sized commercial banks. In 2009, CMB10 and SPDB11 reduced their SD outstanding due to SD expiration while CMBC12 lowered its SD balance because of redemption. Although NBCB does not issue SD during the sample period, it is included in our sample because it holds around 800 million RMB SD of other banks based on estimation by China International Capital Corporation Limited (CICC) 13.

Table1 here

3.3 Definition of real capital

In order to approximate the real capital level of Chinese banks, we apply the capital calculation proposed by CBRC in August 200914 and exclude proportions of cross-held SD from Tier 2 bank capital. This prudential measurement is strict against the banks SD window-dressing tool but unfortunately not carried out by CBRC in its mandatory regulations 15. Where data about SD issuance and holdings are available, we would apply the CBRC method (the 2009 Enquiry) to calculate real CAR. However, due to the scarce data source of SD holdings, we are forced to discount banks tier 2 capital and investments in securities simultaneously in this stud y. According to CBRC, 51% of SD has been cross-held by other banks in the country by 2009 and only 49% of SD could be regarded as qualified Tier 2 capital following the prudential measurement. Therefore, each banks real capital can be recalculated as:

(3)

10 11

CMBs 3,500 million RMB SD issued between March 31st and June 10th 2004 went expired in 2009. SPDBs 6,000 million RMB SD issued on the June 9th 2004 went expired on the 8th July in 2009. 12 CMBCs 5,800 million RMB SD issued in 2004 was redeemed in advance in 2009. 13 NBCBs public announcement on September 28th 2009 indicated that 2,500 million RMB SD would be issued soon to supplement its Tier 2 capital. 14 CBRC, 2009, Notice of Improving Commercial Banks Capital Raising Mechanisms (Enquiry), August 18th 2009. This Document does not acknowledge the wide-spread practice of cross-holding subordinate debts among Chinese banks. 15 CBRC, 2009, Notice of Improving Commercial Banks Capital Raising Mechanisms, No. 90 Document. This Document allows Chinese banks to adjust slowly capital ratios inflated by subordinate debts but prohibits banks to start new SD issuing and cross-holding practice after 2009.

Since we have to adjust banks capital and assets simultaneously, each banks real capital adequacy ratio (RCAR) can be recalculated by following equation16:

(4)

Similarly, each banks real capital to total assets ratio (RCAP) can be recalculated as follows:

(5) Comparisons between banks real CAR and inflated CAR, and real CAP and inflated CAP are provided by Table 2. The average banks RCAR is 9.87%, which is almost 1% less than average inflated CAR (10.63%). Similarly, the average RCAP from 2004 to 2009 is 5.66%, around 0.5% less than the average inflated CAP (6.01%). Therefore, we can tell that Chinese banks do substantially improve their reported CARs by commonly applying the window-dressing technique through SD.

Table2 here

4. Data and Methodology

4.1 Data

Our sample covers all public-listed banks, including four large-sized and ten small-and-mediumsized banks, in China between 2004 and 2009 with a total of 172 observations. All data are manually collected from each banks financial reports. Changes in capital and risk are measured on quarterly basis, representing the highest frequency for which data is systematically available. In our sample period, the listed banks are required by China Securities Regulatory Commission

16

CBRC, 2007, Decision of China Banking Regulatory Commission on Revising the Measures for the Management of Capital Adequacy Ratios of Commercial Banks, No. 11 Document. This Document regulates 100% risk weight for SD.

(CSRC) to announce dual-audited financial reports17. In addition, a few banks such as CCB and ICBC are listed in our sample period.

4.2 Methodology

4.2.1 Simultaneous equations with partial adjustment framework

Considering that capital and risk decisions are determined concurrently, we use the simultaneous model suggested by Shrieves and Dahl (1992), Rime (2001), and Van Roy (2008) to analyse Chinese commercial banks behavior in response to tightened capital regulation.

(6)

(7)

where

and

are the observed changes in capital and risk levels respectively for and are the discretionary adjustments in capital and risk

bank i in period t; respectively; and

are exogenously determined factors.

Since banks may not adjust their target capital ratio and risk levels instantaneously, we assume that and follow a partial adjustment framework. Equation (6) and (7) suggest

that the discretionary changes in capital and changes in risk are proportional to the difference between the target level in period t and the observed level in period t-1:

(8)

(9)

17

On November 14th 2000, CSRC regulated that listed banks shall have two accounting firms (at least one accounting firm must be international) to audit their financial reports to avoid discrepancies in auditing practices. This regulation is no longer imposed by CSRC since 2010.

where

and

are bank is target capital and risk levels, respectively.

Substituting equation (8) and (9) into equation (6) and (7), we can express the observed changes in capital and risk as follows:

(10)

(11)

Therefore, the target capital and risk levels, the lagged capital and risk levels, as well as the random exogenous shocks determine the adjustments in capital and risk. 4.2.2 Definitions of banks capital and risk We use two definitions of banks capital: the total capital to assets ratio (CAP) and the total capital to risk-weighted assets ratio (CAR). The former definition has been applied by Shrieves and Dahl (1992). The latter has become more popular and many studies have employed CAR to measure banks capital since the application of risk-weighted capital standards (such as Jacques and Nigro, 1997; Aggarwal and Jacques, 1998; Ediz et al., 1998; Cannata and Quagliariello, 2006; Saadaoui, 2011).

Academic literatures seem to cover various measurements over bank risks, most of which are subject to criticisms over weaknesses. In this study, we measure bank risk-taking (RISK) with credit risk ratio, the ratio of risk-weighted assets (RWA) to total assets (TA). This measurement is first proposed by Shrieves and Dahl (1992) and subsequently used by Jacques and Nigro (1997), Aggarwal and Jacques (1998), Rime (2001), Cannata and Quagliariello (2006), Van Roy (2008), and Saadaoui (2011).

4.2.3 Variables affecting changes in capital and risk

Although it is not easy to observe directly the target capital and risk levels of a bank in equations (10) and (11), these targets should depend on some sets of observable variables which describe the banks financial condition and the state of Chinese economy. We use the bank size (SIZE), profitability (ROA), asset quality (LLOSS), changes in the credit risk ratio ( ), the degrees

of regulatory pressure (CARLOW and CARHIGH) and year dummies (YEAR) to approximate the target capital to assets ratio ( capital to assets ratio ( ratio ( . Besides, we employ SIZE, LLOSS, changes in the

), CARLOW, CARHIGH, and YEAR to proxy the target credit risk

). Shrieves and Dahl (1992) use all these variables, except ROA which is emphasized

by Aggarwal and Jacqures (1998), and the regulatory pressure variables (RPL and RPG) which are proposed by Aggarwal and Jacques (1998 & 2001), Godlewski (2005), Jacques and Nigro (1997), Rime (2001) and Van Roy (2008).

Size Bank size, measured by the natural log of total assets, is related to both banks target capital and risk. Size can affect target capital and risk level due to its relationship with risk diversification, investment opportunities and access to equity capital markets.

Current profits Current profits, measured by ROA, can affect the banks target capital if the bank chooses to increase capital through retained earnings rather than share offering. In the existence of information asymmetry, equity issues could transmit negative signal about the banks value to the market.

Asset quality Asset quality can affect the banks target risk. This study uses the ratio of loan loss reserve to total assets (LLOSS) to measure asset quality. LLOSS represents capital that the bank sets to cover bad loans. Since increases in LLOSS lead to decreases in the risk-weighted assets, LLOSS has negative effects in the risk equation.

Regulatory pressure Previous studies use several ways to evaluate regulatory pressure. For example, Ediz et al. (1998)

apply a probabilistic approach with the dummy variable, which equals to one when the capital adequacy ratio falls below the risk-based capital requirement plus one bank-specific standard deviation of that banks capital adequacy ratio series, and zero otherwise. However, their method is not suitable for our study as the following two reasons. First, this studys sample data are unbalanced. We need to use a different number of observations for each bank to calculate the standard deviation of capital adequacy ratio, which is not appropriate. Second, this definition implies that regulatory pressure is endogenous since bank behavior has influence on the regulatory pressure (Van Roy, 2008).

Since Chinese banks with CARs above or below the regulatory requirement may react differently, we partition regulatory pressure into two variables, CARLOW and CARHIGH, which can recognise the nonlinear relationship between the regulatory capital standards and the changes either in portfolio risk or capital ratios for both the undercapitalised and the adequatelycapitalised banks (Aggarwal and Jacques, 1998 & 2001; Godlewski, 2005; Jacques and Nigro, 1997; Rime, 2001).

The first regulatory pressure variable, CARLOW, equals to (

for banks with CAR below the regulatory RBC requirements and 0 otherwise. We use this variable to study the reactions of undercapitalised banks to the increased capital standards. Banks with positive CARLOW are subject to the regulatory pressure to enhance their capital ratios because they fail to meet the minimum CBRC regulatory risk-based capital ratio. Thus, we expect that CARLOW should have a positive effect on capital ratios and a negative effect on portfolio risks, because banks may either increase capital or reduce risk-weighted assets to meet the regulatory minimum risk-based standards.

Another regulatory pressure variable, CARHIGH, equals to (1/

-1/

) for

banks with CAR above the peer market average and 0 otherwise. This variable is introduced to examine the behaviour of the adequately-capitalised banks facing the binding capital requirements. Although banks with CARs in excess of binding requirements are not explicitly constrained by regulation, capital standards can still significantly influence banks capital ratios or risks in their portfolio of assets, banks may decrease their capital ratios or increase their

portfolio risk. Alternatively, these banks may choose to improve their capital ratios or reduce risks to accumulate more buffers against shocks to equity in the future. By doing so, they can signal to both the market and bank regulators so as to seek reduction in regulatory costs.

Simultaneous changes in risk and changes in capital Since banks capital and risk choices are interdependent, this study uses the simultaneous equations to estimate them concurrently. Shrieves and Dahl (1992) claim that the relative importance of the marginal benefits and marginal costs of asset risk and leverage will decide whether changes in bank risk have a positive or negative relationship with the changes in bank capital. When the banks exploitation of the deposit insurance subsidy dominates the banks behaviour, we should observe a negative relationship between changes in risk and capital, and a lasting trend toward lower capital and higher risk levels. However, some combination of leverage and risk related cost factors would result in a positive relationship between the changes in risk and the changes in capital.

Year dummy variables In order to measure the effects of macroeconomic and regulatory shocks in any given year, the simultaneous equations include dummy variables for each year, except 2004 to avoid perfect multicollinearity.

Table 3 shows the mean values of above important variables for each of the six sub-periods. We notice that Chinese banks have relatively high capital adequacy ratios either measured by RCAR or CAR and very low ROA in our sample period. However, the RCARs and the CARs indicate different regulatory pressure over banks while banks are under constant pressure to adjust their capital levels. In the meantime, despite rapid expansion in banks sizes, Chinese banks have lowered their loan loss provisions as another means to boost their capital ratios. In other words, Chinese banks may have lowered their asset quality when they report historically high CARs.

Table 3 here

4.2.4 Empirical specification

With the analysis of above variables, the model defined by equations (10) and (11) can be written as:

(12)

(13) where i is a bank index (i=1,,14) t is a time index (t=2005,,2009) ~IID (0, ~IID (0 ) )

The emphasis of this study is on the regulatory pressure variables, denoted by CARHIGH and CARLOW. Moreover, and test the overall relationship between changes in capital and risk.

We pool the cross-sectional data over the research period and use the three-stage least squares (Jacques and Nigro, 1997; Aggarwal and Jacques, 1998; Rime, 2001; Van Roy, 2008) to estimate the simultaneous equations (12) and (13). In short, this methodology can take into account the simultaneity of banks adjustments in capital and risk and obtain asymptotically more efficient estimates than the two-stage least squares.

5. Results

5.1 Results on RCAR and CAR Table 4 provides the results of the simultaneous equations when we use the ratio of banks capital (both real and inflated capital) to RWA and the ratio of RWA to total assets as dependent variables. The left-hand part of Table 4 shows the results for the ratio of the real capital to RWA. In the real capital equation, regulatory variables for adequately-capitalised banks (RCARHIGH)

has a significantly positive impact on the ratio of real total capital to RWA, which is consistent with the findings by Haubrich and Wachtel (1993) in arguing the desire of well-capitalised banks to signal both the market and bank regulators that they not only meet but clearly exceed the minimum regulatory capital standards. Ceteris paribus, adequately-capitalised banks increase their real capital ratio by 1.31 percents more than other banks, suggesting that CBRC risk-based capital standard is effective in raising capital ratios among banks which are already incompliance with the minimum risk-based standards. However, regulatory variable for undercapitalised banks (RCARLOW) shows a negative and significant effect on banks real capital level. Ceteris paribus, undercapitalised banks decrease their real capital ratio by 0.2 percent more than other banks. This result is not against the notion that risk-based capital has an impact on undercapitalised banks. In fact, it indicates that mildly undercapitalised banks would experience relatively large increases in their capital ratio either by raising capital or reducing risk-weighted assets, while the most severely undercapitalised banks may experience relatively small increases in their capital ratio. One possible explanation for this is that because constrained banks have the low ROA and high expense of raising capital from external sources, severely undercapitalised banks may have the extremely limited ability to meet the risk-based standards by raising capital, while mildly undercapitalised banks may have been relatively more successful in raising their capital ratio. In additions, most of Chinese banks are state-owned banks although they are undergoing the process of partial privatization. The central government bailout and the almost zero possibility of going bankruptcy give the capital-insufficient banks incentives to operate without actively improving their poor capital positions. This result is consistent with the findings by Jacques and Nigro (1997) that commercial banks which are deficient in risk-based capital, regulation have the negative and significant effects on their capital ratios. In the controlling variables, SIZE has a significantly negative impact, indicating that large Chinese banks increase the ratio of their capital to RWA less than other banks. One plausible reason is that large banks can get access to capital markets easily so that they can operate with lower capital. The Too-Big-to-Fail effect also suggests that large banks feel less pressure to increase their capital ratio. The parameter on the lagged capital is negative and significant, indicating that Chinese banks have adjusted their capital ratios fast to desired levels since 2004.

In the risk equation, both regulatory variables RCARHIGH and RCARLOW have no significant impact on banks risk, suggesting that adequately-capitalised banks and undercapitalised banks neither increased nor decreased the share of risk-weighted assets in their portfolio. The parameter on lagged risk is negative and significant, indicating that Chinese banks were adjusting their risk to desired levels fast from 2004 to 2009. All the time dummies in the equation are

significantly negative when RCAR is employed as the dependent variable. This result provides evidence that banks in China decrease credit risk at the beginning of 2004, ceteris paribus.

Similarly, the right-hand part of Table 4 presents the results for the ratio of the inflated total capital to RWA. All the variables in the system display the same sign and level of significance as the measurement on banks real capital ratio. Ceteris paribus, undercapitalised banks decrease their capital ratio by 0.18 percent more than other banks while adequately-capitalised banks increase their capital ratio by 1.31 percents more than other banks.

According to Table 4, changes in capital and credit risk are negatively and significantly related. Specifically, Chinese banks adjust risk when capital changes but they do not adjust capital when risk changes. In the case of relationship between RCAR and RISK, an increase of 1 percent in the real capital ratio decreases the credit risk ratio by about 0.42 percent. This result indicates that CBRC regulation is effective to limit adequately-capitalised banks risk-taking behaviour. However, this negative relationship between the changes in the real capital ratio and the changes in the credit risk implicitly suggest that, binding capital requirements could cause the increase in the portfolio risk for the under-capitalised banks. Comparisons with the previous empirical studies, this discovery of negative relationship between the changes in the capital and risk is consistent with the findings of Gunther and Robinson (1990), McManus and Rosen (1991), Berger (1995), Jacques and Nigro (1997), Aggarwal and Jacques (1998), and Van Roy (2008). The results from Aggrawal and Jacques (1998) indicate that an increase of 1% in the capital ratio of banks causes a decrease of 0.058% in their credit risk in 1992 while an increase of 1% in the credit risk ratio leads to a decrease of 0.476% in capital ratio, when the ratio of non-performing loans to total assets is employed to measure the risk. The results on Japanese banks of Van Roy (2008) suggest that an increase of 1% in the core capital-to-assets ratio of banks leads to a decrease of 2.83% in the credit-risk ratio, assuming all other factors being equal. In other words,

Van Roy (2008) discovers that Japanese banks improve their tier one capital ratio by increasing their tier 1 ratio and lowering their credit risk simultaneously. Shrieves and Dahl (1992) argue that a negative correlation may result from the mispricing of deposit insurance. Jacques and Nigro (1997) further argue that methodological flaws in the risk-based capital standards could account for a negative relationship between risk and capital.

Table 4 here

5.2 Results on RCAP and CAP Table 5 shows the results of the simultaneous equations when the ratio of banks capital (both real and inflated capital) to total assets and the ratio of RWA to total assets are used as dependent variables. The left-hand part of Table 5 presents the result for RCAP. One of the regulatory pressure variables, RCARHIGH has a significantly positive effect on capital but no impact on risk. Ceteris paribus, adequately-capitalised banks increase their real capital by 0.52 percent more than other banks. The other regulatory pressure variable RCARLOW has a significantly negative impact on the ratio of real total capital to RWA but no impact on risk. Ceteris paribus, undercapitalised banks decrease their real capital ratio by 0.09 percent more than other banks. In the controlling variables, both SIZE and LLOSS have significant impacts with expected signs. In the capital equation, SIZE has a significantly negative impact, indicating that large Chinese banks increase the ratio of their capital to RWA less than other banks. In the risk equation, LLOSS has a significant and negative impact on credit risk, reflecting banks increased capital for covering bad loans. The right-hand part shows the estimates for CAP. Similarly, CARHIGH has a significantly positive impact on the banks inflated capital level for adequately-capitalised banks. Specifically, these banks increase the total inflated capital ratio by 0.48 percent more than other banks.

With the respect of the overall relationship either between

CAP and RISK or between CAP

and RISK, we observe a negative and significant relationship between changes in capital and changes in risk. In the case of relationship between RCAP and RISK, an increase of 1 percent

in the real capital to assets ratio decrease the credit risk by about 1.24 percents while a same increase in the credit risk ratio causes a decrease in RCAP by about 0.08 percent.

To sum up, CBRC capital regulations have a positive effect on the improvement of Chinese banks capital adequacy (both real and inflated capital) and the decrease in their risk-taking behaviour for adequately-capitalised banks regardless of the effect of cross-holding SD. However, our results are less conclusive about the impacts of the capital requirements on the capital constrained banks.

Table 5 here

5.3 Robustness

In Sections 5.1 and 5.2, we examine the impacts of CBRC regulation on both real and inflated capital ratios. In this section, core capital ratios are used for robustness check. Using the threestage least squares, we find that our estimation of the coecients and the relationship between the changes in the capital ratios and the changes in the credit risk level for Chinese banks, is robust to alternative specications. Table 6 provides the results of the simultaneous equations when the ratio of banks core capital ratios and credit risk ratios are used as dependent variables. As noted, this alternative specication yields similar estimations for Chinese banks. The left-hand part suggests that CBRC regulation CCARHIGH has a positive effect on the capital ratios and the risk-taking behaviour for adequately-capitalised banks. As for the undercapitalised banks, the regulation pressure CCARLOW has no significant effect on both banks capital ratio and credit risk-taking behaviour. Regarding the overall relationship between the changes in capital ratios and that in credit risk levels, a negative impact can be identified on the changes of capital ratios. Specifically, Chinese banks adjust risk when their capital changes but they do not adjust capital when risk changes. All other things being equal, an increase of 1 percent in banks to a decrease of 0.68 percent in the banks leads

. In the capital equation, most of the time

dummies, except that for 2005 and 2006, have significant positive effects on capital level, suggesting that Chinese banks increase their target capital levels at the beginning of 2004.

Similarly, the right-hand part of Table 6 presents the results for the ratio of the core capital to total assets. Most of the variables in the system display the same sign and level of significance as the measurement on the ratio of core capital to RWA except for the changes in well. Ceteris paribus, an increase of 1 percent in banks percent in . in the capital equation, which shows a negative and significant effect on banks core capital level as leads to a decrease of around 0.06

Table 6 here

6. Conclusion

This study initiatively explores the notion of real capital ratio by considering the cross-holding portion of SDs and uses simultaneous measurements to examine how Chinese banks respond to the regulatory capital regulations during the period 2004-2009. Our findings can be summarised as follows. First, Chinese banks do improve their capital ratios by substantially cross-holding other banks SDs. Second, CBRC regulatory pressure has significant positive impacts on the ratio of banks capital to risk-weighted assets and the ratio of capital to total assets regardless of the banks window-dressing technique, without influencing banks risk. This finding suggests that Chinese banks may choose to increase the required capital through retained earnings or equity issues, rather than adjusting the risk of their portfolio of assets. Third, our finding could suggest the desire of adequately-capitalised banks to maintain larger buffers of capital and to signal both regulators and market that they can clearly exceed the regulatory capital standards. Fourth, changes in banks credit risk and changes in capital ratios are significantly negatively related, indicating that CBRC capital regulations are not only useful to improve capital level but also helpful to limit risk-taking behaviour for adequately-capitalised banks. However, results for the undercapitalised banks are not satisfying. More regulation should be implemented for the undercapitalised banks.

In short, we can conclude that CBRC capital regulations are effective in increasing the capital buffers for adequately-capitalised banks and in controlling their credit risk despite the windowdressing through SDs. Our findings have rather important policy implications for that the capital regulations have achieved to a large extent the desired effects on banks capital and risk-taking behaviour. This is consistent with the traditional view that Chinese regulators maintain rather strict control over its financial institutions. However, the regulators control has been weakened by the common window-dressing practice and the risk-taking behaviour of undercapitalised banks in the country.

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Appendix A: List of Abbreviations The Peoples Bank of China China Banking Regulatory Commission China International Capital Corporation Limited Industrial and Commercial Bank of China Limited Bank of Communication China Construction Bank Bank of China Bank of Beijing Bank of Nanjing China Minsheng Banking Corporate.Ltd Bank of Ningbo Shanghai Pudong Development Bank Huaxia Bank China Citic Bank China Merchants Bank Shenzhen Development Bank Industrial Bank Co.Ltd

PBOC CBRC CICC ICBC BOCM CCB BOC BOB NJCB CMBC NBCB SPDB HXB CNCB CMB SDB CIB

Appendix B: Definition of Variables

RCAR: The ratio of calculated real total capital to risk-weighted assets. CAR: The ratio of inflated total capital to risk-weighted assets. RCAP: The ratio of calculated real total capital to total assets. CAP: The ratio of inflated total capital to total assets. RISK: The ratio of risk-weighted assets to total assets. CCAR: The ratio of total core capital to risk-weighted assets. CCAP: The ratio of total core capital to total assets. RCAR: The difference between the current and the lagged RCAR. CAR: The difference between the current and the lagged CAR. RCAP: The difference between the current and the lagged RCAP. CAP: The difference between the current and the lagged CAP. RISK: The difference between the current and the lagged RISK. CCAR: The difference between the current and the lagged CCAR. CCAP: The difference between the current and the lagged CCAP. RCARHIGH: The difference between the inverse of the regulatory minimum risk-based capital ratio (RBC) and the inverse of bank is real risk-based capital ratio; RCARHIGH equals to (1/ and 0 otherwise. RCARLOW: The difference between the inverse of bank is real risk-based capital ratio and the inverse of the regulatory minimum risk-based capital ratio (RBC); RCARLOW equals to (1/ 1/ for banks with RCAR less than the capital ratio requirements 1/ for banks with RCAR greater than the capital ratio requirement

and 0 otherwise. CARHIGH: The difference between the inverse of the regulatory minimum risk-based capital ratio (RBC) and the inverse of bank is inflated risk-based capital ratio; CARHIGH equals to (1/ and 0 otherwise. CARLOW: The difference between the inverse of bank is inflated risk-based capital ratio and the inverse of the regulatory minimum risk-based capital ratio (RBC); CARLOW equals to 1/ for banks with CAR greater than the capital ratio requirement

(1/

1/

for banks with CAR less than the capital ratio requirements and

0 otherwise. CCARHIGH: The difference between the inverse of the regulatory minimum risk-based core capital ratio (core RBC) and the inverse of bank is risk-based core capital ratio; CCARHIGH equals to (1/ 1/ for banks with CCAR greater than the core

capital ratio requirement and 0 otherwise. CCARLOW: The difference between the inverse of bank is risk-based core capital ratio and the inverse of the regulatory minimum risk-based core capital ratio (core RBC); CCARLOW equals to (1/ 1/ for banks with CCAR less than the core capital ratio

requirement and 0 otherwise. ROA: The ratio of net income to total assets. SIZE: The natural log of total assets. LLOSS: The ratio of loan loss reserve to total assets.

Table 1 Information about Chinese Banks SD Issuance (Unit: 1 million RMB) Panel A: Large-Sized Commercial Banks Bank Name 31/12/2004 31/12/2005 31/12/2006 31/12/2007 31/12/2008 31/12/2009 CCB 23,300 40,000 40,000 40,000 40,000 80,000 ICBC 0 35,000 35,000 35,000 35,000 75,000 BOC 26,070 60,000 60,000 60,000 60,000 73,930 BOCM 12,000 12,000 12,000 37,000 37,000 50,000 Panel B: Small-and-Medium-Sized Commercial Banks Bank Name 31/12/2004 31/12/2005 31/12/2006 31/12/2007 31/12/2008 31/12/2009 CMB 3,500 3,500 3,500 3,500 33,500 30,000 SPDB 6,000 8,000 10,600 16,600 24,800 18,800 CNCB 6,000 6,000 12,000 12,000 12,000 12,000 CIB 6,000 6,000 6,000 6,000 6,000 10,000 HXB 4,250 4,250 6,250 6,250 6,250 6,250 SDB 0 0 0 0 8,000 8,000 BOB 0 3,500 3,500 3,500 3,500 3,500 CMBC 5,800 7,200 7,200 7,200 7,200 1,400 NJCB 0 800 800 800 800 800 NBCB 0 0 0 0 0 0 Note: NBCB does not have SD outstanding from 2004 to 2009. Banks full names can be found in Appendix A.

Table 2 Mean of CAR, RCAR, CAP and RCAP

RCAR vs. CAR RCAP vs. CAP 2004 7.47% 8.14% 4.53% 4.97% 2005 7.95% 8.76% 4.55% 5.03% 2006 9.09% 9.86% 5.19% 5.65% 2007 11.99% 12.78% 6.44% 6.90% 2008 12.06% 12.86% 6.60% 7.07% 2009 10.67% 11.38% 6.02% 6.44% Average 9.87% 10.63% 5.56% 6.01% Source: Banks quarterly financial reports and authors calculation.

Table 3 Mean of variables 2004 2005 2006 2007 0.7111 0.9901 1.8475 3.4448 3.9290 2.6598 1.6529 0.2861 1.0740 1.4210 2.3413 4.0098 3.1825 1.9864 1.2070 0.1558 6.3317 6.5441 9.0537 12.9469 2.1030 0.6534 0.1357 0.0000 0.0860 0.0718 0.0855 0.1028 (RCWA) 0.0873 0.0781 0.0934 0.1111 (CWA) 0.0471 0.0438 0.0493 0.0564 (RCTA) 0.0479 0.0477 0.0541 0.0612 (CTA) 0.5585 0.6249 0.5793 0.5560 (RWA) 0.0637 0.0524 0.0661 0.0829 (CCWA) 0.0349 0.0326 0.0385 0.0459 (CCTA) -0.0113 0.0077 0.0054 0.0171 -0.0059 0.0095 0.0052 0.0167 -0.0018 0.0018 0.0026 0.0081 0.0018 0.0026 0.0025 0.0079 0.0699 -0.0474 -0.0010 -0.0069 -0.0081 0.0059 0.0059 0.0168 -0.0008 0.0011 0.0028 0.0081 0.0036 0.0045 0.2327 0.0064 0.0146 0.0166 0.0148 0.0124 13.0043 13.3076 13.7615 14.0197 (natural log) Source: Banks quarterly financial reports and authors calculation. 2008 2.8614 0.3857 3.3185 0.0863 11.6358 0.0000 0.1234 0.1309 0.0669 0.0713 0.5551 0.1039 0.0568 -0.0027 -0.0023 -0.0008 -0.0006 0.0028 -0.0035 -0.0013 0.0082 0.0117 13.9821 2009 0.8663 0.6782 1.1774 0.2753 7.4511 0.0441 0.1126 0.1202 0.0626 0.0670 0.5630 0.0920 0.0515 -0.0060 -0.0064 -0.0023 -0.0026 0.0058 -0.0048 -0.0018 0.0061 0.0098 14.1831

Table 4 Results for the systems based on

and CAR and RISK as the dependent variables coefficient P-value coefficient P-value

RCAR and RISK as the dependent variables coefficient 0.0131*** -0.0020*** P-value 0.00 0.00 coefficient -0.0028 0.0012 P-value 0.24 0.37

0.0131*** -0.0018*** -0.4164** 0.0403 0.0014 -0.0034*** -0.8725*** 0.32 0.58 0.00 0.00 -0.8539*** -0.3907*** 0.00 Year 2005 0.0062 0.36 -0.0798*** 0.00 Year 2006 0.0019 0.73 -0.0488*** 0.01 Year 2007 0.0064 0.26 -0.0538*** 0.01 Year 2008 0.0119** 0.04 -0.0549*** 0.00 Year 2009 0.0267*** 0.00 -0.0567*** 0.00 Note: * significant at 10%; ** significant at 5%; *** significant at 1% 0.0064 0.0009 0.0054 0.0117** 0.0274*** 0.05

0.00 0.00

-0.0039 0.0006 -0.5176**

0.11 0.63 0.01

-0.0013 -0.5150

0.67 0.65

0.0385 0.0020 -0.0034***

0.37 0.44 0.00

-0.0015 -0.5876

0.63 0.60

0.00 0.37 0.87 0.37 0.05 0.00 -0.3908*** -0.0797*** -0.0496*** -0.0526*** -0.0563*** -0.0615*** 0.00 0.00 0.01 0.01 0.00 0.00

Table 5 Results for the systems based on

and CAP and RISK as the dependent variables coefficient P-value coefficient P-value

RCAP and RISK as the dependent variables coefficient 0.0052*** -0.0009*** P-value 0.00 0.00 coefficient -0.0027 0.0014 P-value 0.29 0.32

0.0048*** -0.0009*** -1.2353*** -0.0841*** 0.0007 -0.0017*** -0.6918*** 0.00 0.47 0.01 0.00 -0.6540*** -0.4108*** 0.00 Year 2005 -0.0108** 0.04 -0.0803*** 0.00 Year 2006 -0.0069 0.11 -0.0493*** 0.02 Year 2007 -0.0060 0.18 -0.0545*** 0.01 Year 2008 -0.0038 0.36 -0.0589*** 0.00 Year 2009 0.0029 0.48 -0.0623*** 0.00 Note: * significant at 10%; ** significant at 5%; *** significant at 1% -0.0108** -0.0078* -0.0066 -0.0045 0.0018 0.01

0.00 0.00

-0.0039 0.0006 -1.4484***

0.14 0.66 0.00

-0.0015 -1.2415**

0.67 0.05

-0.0788*** 0.0009 -0.0016***

0.00 0.36 0.01

-0.0018 -1.0211*

0.60 0.10

0.00 0.03 0.07 0.14 0.29 0.68 -0.4232*** -0.0834*** -0.0534*** -0.0562*** -0.0627*** -0.0692*** 0.00 0.00 0.01 0.01 0.00 0.00

Table 6 Results for the systems based on

and CCAP and RISK as the dependent variables coefficient 0.0019*** 0.0003 P-value 0.00 0.57 coefficient -0.0017* 0.0033 -1.8355*** P-value 0.10 0.26 0.00

CCAR and RISK as the dependent variables coefficient 0.0047*** 0.0004 P-value 0.00 0.62 coefficient -0.0018** 0.0031 -0.6819*** P-value 0.05 0.25 0.01

0.0415 0.0019 -0.0045*** -0.7244***

0.39 0.53 0.00 0.00

-0.0008 -1.0331

0.80 0.34

-0.0452* 0.0009 -0.0020***

0.06 0.41 0.00

-0.0015 -1.1289

0.67 0.15

-0.5727*** -0.3828*** 0.00 Year 2005 0.0116 0.15 -0.0753*** 0.00 Year 2006 0.0096 0.16 -0.0416** 0.03 Year 2007 0.0160** 0.02 -0.0440** 0.03 Year 2008 0.0165** 0.02 -0.0517*** 0.01 Year 2009 0.0272*** 0.00 -0.0559*** 0.00 Note: * significant at 10%; ** significant at 5%; *** significant at 1% -0.0042 -0.0010 0.0014 0.0012 0.0063*

0.00 0.35 0.80 0.70 0.75 0.10 -0.4109*** -0.0788*** -0.0434** -0.0447** -0.0557*** -0.0593*** 0.00 0.00 0.05 0.04 0.01 0.00