Research On The Economic Capital Management Method Of Commercial Bank Under Countercyclicality Adjustment

The International financial crisis from2008fully exposes the procyclical of the"Basel Accord II".Therefore, as a supplement and amendment of the "Basel AccordII", the Basel Committee issued the "Basel Accord III" in2010, which put forward theconcept of counter-cyclical capital buffers, and put the counter-cyclical adjustmentinto the capital supervision framework. Under the impetus of the "Basel Accord II" andthe "Basel Accord II", the risk management of commercial banks gradually change tocomprehensive risk management with risk measurement and capital allocation as thecore, economic capital management is the core of risk management in the modernbanking industry. how to mitigate the pro-cyclical nature of the financial system is animportant task for the current banking risk management.. Therefore, it is ofsignificance to research the economic capital management of comm ercial banks basedon counter-cyclical adjustment.. within the framework of the "Basel Accord II" and"Basel Accord III", from the banking development angle, this dissertation discusses theimplementation method of commercial bank economic capital management ofcounter-cyclical adjustment.The dissertation discusses the major changes on the banking supervision and theimpact on commercial bank capital management of commercial banks of and the"Basel Accord III", and expounds the necessity of the implementation of economiccapital counter-cyclical adjustment, which provide the basis and theoretical basis asthe research of economic capital management of commercial banks based on thecounter-cyclical adjustment method.The dissertation demonstrates the economic capital procyclicality using theempirical method. Default probability is the key parameter for the measurement ofeconomic capital. As the premise of the empirical research on the probability of defaultcorrelation with economic capital, through further demonstration of default probabilityof procyclicality, it is proved that the economic capital procyclicality existence. Thisdissertation selects the single factor model and the CreditRisk+model for empirical,and empirical results show that, the economic capitals using different measurementmodel methods are pro-cyclical effect obviously, but also in the degree ofprocyclicality effect is similar; and under the same parameters, the pro-cyclicality ofprobability of default causes the obvious pro-cyclicality of the economic capital measured by the models.On the basis of the empirical analysis, the dissertation gives the generalframework of economic capital management based on the counter-cyclical adjustment.In the given general framework, this dissertation studies the economic capitalmeasurement method, capital allocation method and economic capital performanceevaluation method of commercial bank based on counter-cyclical adjustment.The measurement of economic capital is the premise and foundation of economiccapital management of commercial bank.In view of the economic capital procyclicality, it is proposed that the cyclicaleconomic adjustment and capital buffer adjustment on the probability of default tosmoothing volatility, so as to realize the economic capital counter-cyclical adjustmentpurposes; the borrowers will be divided into corporate customer ratings, existing retailcustomers and unrated retail customers, in the inverse cycle adjusting the fram ework,were given the bank estimates the mean and standard deviation method of probabilityof default; the measuring path condition of the default loss rate is given under thedifferent collateral default loss rate; Aiming at the defects of the CreditRisk+model onthe band division, the dissertation gives a new division method, and uses theadjustment method of cross cycle in the calculation of band parameters to smooth itsparameters’ volatility; Then for the defect of default loss distribution measuremen t ofthe CreditRisk+model and the VaR method, it measures the economic capital of theloan portfolio using the Panjer algorithm, the saddle point and the GES method. Theempirical results show that, the correlation coefficient between economic capital undercounter-cyclical adjustment method and GDP growth cycle is-0.29, much lower thanthe correlation coefficient between economic capital and GDP growth before theadjustment rate of-0.97, Economic capital procyclicality is significantly eased.Economic capital allocation is the core content of economic capital management.Under the counter-cyclical adjustment framework, through the rational allocation ofeconomic capital, commercial banks can achieve stable operation and long lasting,guard against systemic risk, to maximize the value of capital. This dissertationrespectively researches economic capital allocation methods based on inverse cycleadjustment from two aspects of the total branch management level and business lines.In the framework of counter-cyclical adjustment, based on the maximization of bankEVA as the objective function, the modified RAROC, regulatory requirementsconstraint, bank development strategy, risk concentration, economic capitalcontribution for the allocation of economic capital constraint, this dissertation introduces HTB-ECA model and BTL-NLECA model on the counter-cyclicaladjustment to the branches and the new business economic capital allocation ofcommercial banks. The results of the numerical example show that, these two modelscan better reflect the risk status and size of banks, and conducive to the bank to makethe right decision.The performance appraisal of economic capital management is one of the maincontents of economic capital management. The dissertation puts forward a new conceptof economic capital performance evaluation based on counter-cyclical adjustment, anddiscusses the method of assessment of economic capital performance of employees andbranches, puts forward the BLP-ECPA model and P-ECPA model based oncounter-cyclical adjustment. In the framework of counter-cyclical adjustment, based onEVA, the economic capital contribution degree, task completion, non-performing rateas index, from four aspects of the loan business performance, the contribution ofdeposit business performance, performance and the number of performance, the twomodels can be used in the staff performance appraisal and department performanceevaluation. The results show that, the two models, which reflect the contribution ofbank internal departments or employees, integrated contribution of each branch ofcomprehensive income, promote employee performance and for the bank to create theperformance and for the bank to create together, more effectively guide the bank’sinternal department or employee behavior, ensure limited resources to maximize theregulation and incentives, realize the maximization of bank value.Finally, under the framework of counter-cyclical adjustment, this dissertation putsforward some countermeasures and suggestions for strengthening the economic capitalmanagement to the commercial banks. Commercial banks need to set up the economiccapital measurement system, the allocation system and performance evaluation systemunder the counter-cyclial adjustment; need to set up the strategic support system of theeconomic capital management and to implement the new capital strategy.