Towards financial resilience: an examination of Basel III implementation, efficiency and stability in China’s banking landscape

Abstract

The Global Financial Crisis (GFC) of 2007–2009 spurred global regulatory reforms, including the adoption of the Basel III framework to strengthen banking system resilience. China fully implemented Basel III in 2013, embedding it into a banking sector marked by diverse ownership structures—state-owned, joint-stock, and foreign banks—and increasing global integration. This thesis explores the impact of Basel III capital regulation on credit risk-taking, cost efficiency, and systemic risk in China's banking industry from 2010 to 2022.

Three research questions are addressed: (1) How does Basel III capital regulation influence bank credit risk-taking, considering ownership structures? (2) Does stringent capital regulation affect persistent or transient cost efficiency? (3) What is the relationship between regulatory capital, ownership structures, and systemic risk? Using panel data from 376 Chinese financial institutions (58 listed banks as regression sample), the study employs advanced econometric methods, including a four-component stochastic frontier analysis (SFA) and conditional value-at-risk (CoVaR) models.

Findings reveal that higher regulatory capital reduces credit risk, with state-owned banks exhibiting greater risk-taking and foreign-owned banks adopting conservative profiles. Regulatory capital negatively impacts transient efficiency but does not significantly affect persistent efficiency. State-owned banks demonstrate higher transient efficiency but lower persistent efficiency. Moreover, higher regulatory capital reduces systemic risk contributions, but larger bank size and state ownership amplify systemic risk.

This research highlights the interplay between capital regulation, ownership structures, and bank performance in a transitional economy. It underscores the importance of regulatory capital in mitigating risks and promoting stability, while emphasizing the need for tailored policy approaches that account for ownership dynamics and systemic implications. These insights provide valuable guidance for policymakers and regulators in enhancing the resilience of China's banking sector.

Date of Award	Jul 2025
Original language	English
Awarding Institution	Queen's University Belfast
Supervisor	Barry Quinn (Supervisor) & Lisa Sheenan (Supervisor)