Research On The Comprehensive Risk Management Of Commercial Bank Based On Economic Capital

With fundamental changes in economic structure, increasing financial innovation and financial derivative instruments, market-oriented interest rate and exchange rate, globalized financial product transaction and intensive market competition, the commercial banks are exposed to increasing risks of all types. In2008, the widespread outbreak of subprime mortgage crisis in the United States led to drastic fluctuations in the global financial market, revealing the closer interaction effect between the systemic financial risks and the risks of the banking industry. In order to improve the security and stability of the banking systems, Basle Committee introduced the Basel III in2010based on the Basel II issued in2004. The Basel III sets forth more stringent requirements on commercial bank’s supervision of the capital quality, amount and the risk coverage, emphasizes comprehensive risk management based on the counter-cyclical capital supervision and systemic risk control, and requires the commercial banks to fully consider the unexpected losses arising from credit risks, operation risks and market risks, and control and manage all risks including systemic risks with the capital instruments. As the commercial banks see major reform in risk management, the economic capital based comprehensive risk management study is of theoretical and practical significance.Based on definition of the comprehensive risk management, the Dissertation analyzes the composition and features of the comprehensive risk management deeply, and has concluded that the comprehensive risk management is a man-made system. In addition, the Dissertation has determined the theoretical study base through analysis on the relevant theories, established the driving mechanism for the all risk management system running of the commercial banks through analysis on the goal setting, constraints and incentive factors of the commercial banks, and revealed the inherent logical relationship between the economic capital and the comprehensive risk management through analysis on the material factors of the commercial banks and the afore-hand, in-process and post-effect of the economic capital on all kinds of risks and losses caused thereby. Based on such logical relationship, the Dissertation has further studied the comprehensive risk management system deeply.The comprehensive risk management functions of the economic capital are mainly embodied in risk control, value creation and balance among "profitability, security and liquidity". Risk control is inevitable in comprehensive risk management. The Dissertation has discussed the mechanism of the economic capital constraint risks, and established the economic capital measurement, limit setting and limit monitoring as the risk control process in the process link. The core function of the economic capital is to realize the value creation objective based on risk control. In light of the comprehensive risk management and the objective of value creation, the Dissertation has established the optimization model with additional expected return rate of the economic capital as the objective and the economic capital increment as the restraint. With further analysis on this model, it is concluded that revenue maximization of the commercial banks is guaranteed only when the dynamic adjustment on the bank’s economic capital result in marginal income ratio equal to the invested economic capital. Realization of balance among profitability, security and liquidity of the commercial banks by the way of appropriate loan pricing is important to comprehensive risk management. The Dissertation has studied the RAROC based commercial bank loan pricing method by calculating all kinds of expected risk losses and unexpected losses. In consideration of the liquidity balance requirements of the bank loan and its influence on the performance of the commercial banks, the Dissertation has proposed a dynamic commercial bank loan pricing mode based on the balance among "profitability, security and liquidity" by adjusting the RAROC target.Integrated measurement of risks of different types is the fundament for economic capital allocation in the course of comprehensive risk management. The Dissertation has determined the unified measurement method-VaR method for all types of risks by analysis and combination of the measurement methods for the credit risks, market risks and operation risks of the commercial banks; deduced the allocation of commercial bank’s risk losses and their vector distribution, and concluded through empirical study that the credit risk loss and the market risk loss approximately comply with normal distribution; that the operation risk lose approximately complies with the lognormal distribution; and that the tail approximately complies with the generalized Pareto distribution. On this basis, the Dissertation has determined the integrated risk mode and economic capital measurement method including one type of risk and assets portfolio of multiple risks through research on the correlation among all types of risks.Economic capital allocation and adjustment are the precondition for realization of the comprehensive risk management function. Reasonable economic capital allocation and adjustment are conducive to optimal utilization of the commercial bank’s capital, effective risk control, operation performance improvement and realization of bank value maximization objective. The Dissertation has established the model of economic capital optimal allocation and adjustment based on comprehensive analysis in respect of economic capital allocation and adjustment objectives, total economic capital, concentration risk control requirements, business performance requirements, change in relationship between performance and economic capital and other influence factors.The process is the procedure guarantee for realization of economic capital based comprehensive risk management objective. The Dissertation has analyzed the logical composition of the comprehensive risk management system process, and has studied the corresponding functions of each link in the comprehensive risk management process and how to realize the comprehensive objectives through internal control mechanism in each link based on the comprehensive risk management objectives of the commercial banks. Organization is the structural guarantee for realization of the economic capital based comprehensive risk management objective. The Dissertation has designed the comprehensive risk management organizational system consisting of four levels and seven departments as well as the functions of departments at all levels. The information management system is the key to the comprehensive risk management of the commercial banks and the guarantee to coordinate the economic capital measurement, optimal allocation, portfolio management, performance evaluation and other relevant work. The Dissertation has designed the information collection and transmission direction of the comprehensive risk management system of the commercial banks, and the information system basic structure in the principle of information criteria. Appropriate and compatible risk management ideas and culture are the spiritual security for implementation of comprehensive risk management. On account of the comprehensive risk management objectives, the Dissertation has proposed to foster the value creation oriented total-involvement, whole-process and standardized risk management spiritual culture, and build up the institutional culture, behavior culture and material culture.