A Study Of Commercial Banks' Risk Operation

The risk means uncertainty and potential losses for a special event, while the modern commercial bank just the one who operates those financial products, which are related with uncertainty of the future counterparty, and uncertainty of future financial assets and liabilities price, therefore, commercial banks always face with the task not only risk management but also development goals in risk accumulation and resolving. Many financial enterprises'experiences have proven the utmost importance of risk management. However, one fact is often overlooked: when facing with managing their own risk, commercial banks have consciously or unconsciously outputted their risk-management advantage to customers by providing with original and derivative products, and playing the intermediary roles. Therefore, the essence of modern commercial banking business is risk operation, if there was no risk, there will be no commercial bank. Furthermore, as a kind of commercial bank management product, the risk is not only a survival condition for it, but also their source for profits. Considering this international financial crisis triggered by the U.S. Subprime Mortgage Crisis, the essence of the crisis is the failure operation of modern commercial banking risk products. With the "waves" of the investment banks, insurance companies and rating agencies, Commercial banks are forced to just over-acceptance and shouldering risk, but has not been effective allocation and transfer it, which results in the whole of society accumulation of risk, and eventually different regional and industry spread of risk and crisis exploded. It proved that the success or failure of risk management is not only directly related to the rise and fall of commercial banks, but also the economic financial industry security and development.Mr. Breuer, who is the original Chairman of the Board, Deutsche Bank, is the first one to propose the view that a modern commercial bank has risk management function, and with banks are going into the technological age and an endless stream of financial products, he thinks that the functions of modern commercial banks are transfer from the original finance function to risks intermediation function, and which will lead the development of modern commercial bank. At the same time, foreign theorists have also centered on the theme of the series. However, China's financial theory remains stay at the commercial bank risk management, less involving in risk operating. Risk operation is a reasonable expansion of risk management, which means the commercial banks has the active management strategy, through operational structure, transaction switching, enhance the liquidity and value of cash and other processes, to realize the allocation, transfer and dispersion in the whole society.This article aims to operate risk as a kind of commercial banking products and try to explore mechanisms and path for the commercial bank risk management. The logical framework consists of four parts:The first part is introductory, focusing on the significance of the subject, and pointing out ideas and results of previous research, and made the author's opinion on the basis of previous studies, and the reality condition of home and abroad. The second part makes some document about the risk management theory and empirical investigation. For the theory part, we make the discussion of "Why study this issue?", including the change of the functions, risk characteristics and social background; For the empirical investigation part, we discussed the necessity and urgency of the problem with facts, particularly in light of our operation of commercial banks own lessons, to prove the relevance and reality of the risk management. The third part discusses the question "how should the China's commercial banks operate risk? Risk management needs the demands of the public, especially the investors. Therefore, when design the risk products, the commercial bank should not only consider the particular needs, but also should consider the people's financial awareness-their risk preference. Comparative analysis is including in the fourth part, we compare the commercial bank risk management strengths and weaknesses, try to design to avoid, and to see both favorable conditions and disadvantages.With the economic financial complexity and uncertainty, modern commercial bank's function was gradually expanded. For the society, people ask the balance between rights and obligations, then need for the transfer and devolution for risk. Therefore, for the modern commercial banks, risk management is the essence of its existence and development. Meanwhile, the article from a social risk, economic risk, financial risk and risk management of the social contribution, demonstrated the importance and necessity of risk management.On this basis, in light of the global financial crisis'performance, harm, trend and the pathology discussed in this paper, we think the essence of this crisis is the failure operation of risk. Chinese commercial banks must gradually promote risk management, and should learn lessons from risk management. However, for the U.S. risk management failures, we should not to be unworthy and abandon the road, instead, we should take the comprehensive risk management services to promote healthy development. At the same time, this paper also analysis the relation between risk operation and management, from the perspective of commercial banks themselves.Risk management needs to design risky products by the demand of the public, especially of the investors, which needs scientific and rational institutional arrangements. Modern commercial banks face many kinds of risk. By risk management, commercial banks can train their teams, form mature risk management arrangements and organizational structure, thereby providing effective guarantee for risk management for them and providing talents, business and technical basis. This indicates that commercial banks provide services for risk management. Skills and technology learned through risk management will further promote stable, steady and efficient development of modern commercial banks.Different risk factors that affect the risk preference of investors form different risk preference of residents, companies and organizations, thereby creating the different demand for risk transfer and accept. Modern finance has profound impact on modern society. Households and firms as the clients of commercial banks face investment risk, interest risk, exchange risk, credit risk, and the price change risk of financial assets and debts. How to face these risks? How to get risk premium by risk undertaking? Different investors may have different choices, but there is one thing in common, that is, they hope the commercial banks can provide the intermediary services. And the relevant products of the commercial banks provide the services of risk management.Traditional commercial bank loans, bonds, discount business, M&A loans, personal loans, inter-bank lending have the same characteristic that the depositors transfer the risk to the bank, and the bank then transfers the risk to the borrower's risk management ability. Commercial bank's commercial paper's acceptance business, credit card, bank guarantee and underwriting business transfer the customer's credit risk to the bank, and then banks manage the risk through hedging and risk capital reserves. The factoring and settlement business transfer the credit risk and clearing risk of the clients. In the background of mixed operation, modern commercial banks'investment bank business incorporates assets securitization, non-performing Asset securitization, share underwriting, M&A advisory, mutual fund and so on. These are typical risk management business, and have obvious trading technique of risk management. Commercial banks get high risk profits through the above risk transfer and undertaking.In the developed financial system, modern commercial banks can develop independently risk instruments or products, and then provide them to different investors. In the trading of financial futures, options, swaps or other credit derivatives, modern commercial bank can take the different advantages to make the risk transferred and traded, thereby accomplishing risk management by providing the two parties a channel for risk trading. The complicated trading technique, high leverage, difficult risk management and control need high requirement for the investors and commercial banks.Modern commercial banks have many advantages including worldwide network, mixed operation (synthesis), numerous clients'resources, popular brand and good reputation, information from clients and data, talents, risk management, internal control and product development, which provides absolute advantage for risk management. The ability of risk analysis and management expands the commercial bank's business size bigger and bigger.Currently, a large number of literatures were concentrated on the commercial bank risk management, but less involved the proposition "the modern commercial banking is also a risk operation business". Based on this, the paper sought to systematically explain the modern commercial bank risk operating in the theoretical and practical approaches, to start a discussion for both academics and practitioners to study the problem.Innovationâ… :With a review, combined with realistic problem, we evaluate the functional changes in commercial banks. Earlier proposed "risk management" concept, that is, to operate the risk as a product, and discusses the risk management process, mechanism and effectiveness. We also clarify the relationship between risk and profit, and how to develop financial products to make intermediary and risk transfer.Innovationâ…¡:From the perspective of supply and demand, we make analysis deeply that modern commercial banks are the main suppliers of risk products, and have a range of operational advantages; at the same time, we analysis the financial demand for acceptance of risk transfer for modern commercial bank customers, from the point of the investors'risk appetite, and we find the motivation and power for risk management products.Innovationâ…¢:We discuss systematically about the logical relationship between the modern commercial bank risk management, risk operation and risk tolerance, and find that the ability of risk controlling and management has a directly effect on the success risk management, therefore, the success of risk management affects the strength of their risk tolerance.Innovationâ…£:This paper reveals the essence of the current global financial crisis, which is the result of the over-risk management in Europe and America banks, and finds that the successful risk management has a great relationship with the security and stability of economy and finance. Considering the reality in our country, we argue that there is a great potential for the risk management development in China, and we need to learn lessons from developed countries, promote the risks of modern commercial banking business actively and steadily.As limited by the author's ability, this paper still exists some limitation and needs for further research:â… . Because of the lack of data and relevant information, we don't have a comprehensive analysis for the performance of commercial banks risk management, and also fail to compare different periods and regions of the commercial bank risk management strengths and weaknesses.â…¡. Commercial bank risk management is a systematic project, how to distinguish between traditional and modern business model differences, and the distinction between active and passive management risk, need to build a scientific standardized methods and comprehensive index system, this will be a long but meaningful work.