Research On The Economic Capital Management Of Commercial Bank

Since the 1980s, the international banking industry happened a series of crisis and scandals, especially since the economic crisis in 2007, the international financial industry is facing the most severe challenge since the 1930s. In less than one year, the world goes to all-round unrest from Great Moderation in which economy grows fast and inflation is moderate. Some of the original financial institutions went bankrupt and some been taken over, the government had to intervene the core financial institutions which could cause systematic risk on a large scale. This suggests further that excess liquidity and low interest environment for a long time have caused over leveraged behavior of financial institutions, lacking of the capacity to resist unexpected loss, which means not reserve enough capital to release capital slowly, so both the theory field and the practice field are aware of the importance of capital management of commercial banks and the problems in management, in 1998 the Basle Committee made "Basle Agreement" which built the frame of outside management of capital for the international banking industry. Thereafter, the western banking industry gradually and more and more treats the problem of capital management from the aspect of their own business but not from the aspect of being regulated, the position of economic capital management in commercial banking management is improved gradually, commercial banks in different countries are studying the economic capital management system which suits their own characteristic, a great deal of advanced risk measure technology, methods of distributing economic capital are applied in the risk management process of commercial banking industry, economic capital consumption has been an important index of checking the operation achievements of commercial banks, economic capital consumption has been an important factor which constrains business development.More and more advanced financial technology and the continually emerging financial innovative products as well as the deepen of marketization have made the business and its risk combination of our commercial banks more and more complicated, harder to recognize and measure, traditional method which depends on expert judgments and simple risk measurement to recognize and manage risk can not meet the severe situation faced by Chinese commercial banking industry. Even through the shock in our commercial banking industry by the economic crisis started in 2007 is slight which due to our low open level of commercial banks, small volume of derivative trade, but it cannot suggest that our management of commercial banks is batter than abroad, on the contrary, there is a big gap between our management of commercial banks and abroad banks. Chinese commercial banks must go in the direction of international banking risk management, combined with the reality of our country, from the aspect of internal management of commercial banks, study how to use economic capital management to resist all-round risk, improve the level of management and capacity of resistance, enhance the capacity of coping with significant disadvantageous matters.Based on the theory of risk management of commercial banks and the theory of economic capital management, this paper combines the experience of advanced banks abroad and economic capital econometric models as well as distributive models which are used universally all over the world and also the reality of our commercial banks. With the aids of methods of normative research and empirical study, historical research and comparical research, macroanalyse and microanalyse,problem posing, theoretical analysis, realistic background analysis and empirical study are carried out step by step. The whole paper includes 7chapters, as follows:Chapter 1 is an abstract. This chapter gives a general instruction of the whole paper; Chapter 2 is focus on the basic theory of economic capital management of commercial banks.Chapter 3 is one of key sections in the paper, mainly studying the measurement of economic capital. This chapter mainly introduces the measurement of credit risk, market risk and operational risk and China's commercial banks choose standard approach to implement the risk measurement currently. Chapter 4 is one of the most important part of this thesis. It mainly studies the configuration and China's commercial banks choose standard approach Chapter 5 mainly focuses on the practical application of economic capital management in commercial banks performance assessment, budget management and loan pricing. Chapter 6 is a summary of the conclusion which based on the previous theoretical analysis and empirical test. It researches the history, status and applications of commercial banks in China, then analyses problems in economic capital management. At last, it puts forward specific and practical ways to implement the proposed route combining with the advanced experience of foreign banks.Chapter 7 gives the summary of the paper. According to the above, the following conclusions can be drawn as following. (1)the measurement of credit risk. Considering the practical status of our commercial banks, foundation IRB should be accepted to measure the credit risk.(2)the measurement of market risk.At present, our commercial banks should introduce standardized approach of BASELLâ…¡.(3)the measurement of operating risk. In the face of being short of adequate historical data, advanced measurement technology and perfect information system, standardized approach should be accepted, but the level of proportion should be heightened.(4)economical capital configuration and regulation capital demandment. regulation capita is a compellent guildline in our country, so we should conderate it in configuraing economical capital.(5)economical capital configurational route:combining top-to-bottom with bottom-to-top.(6)applying RAROC to performance assessment,budge distribution and loan price.The innovation of the study can be presented in three aspects.(1) this thesis mainly concentrated on studying economical capital systemly that fitting our commercial banks in theory(2) suggestions of this thesis were operational and aimly.(3)this thesis provided the practical choice of our commercial banks in measurement of risk and configuration of economical capital.At last, I had to say there was some limitation in this thesis.(1) this thesis was lack of improving risk measurement model(2)this thesis operation in practice was required to be validated.The above limitation were the directions for my later research.