The Study Of Credit Derivatives' Application In Chinese Commercial Banks' Credit Risk Management

Credit risk is the oldest risk type of bank institutions, which almost lives with the credit operations of banks. With credit operations types becoming more and more complex, in order to reflect and deal with credit risk well and truly, both the banks themselves and the supervision authorities need more effective credit risk computation and management technologies. As to the commercial banks, credit derivatives are the appropriate new products to meet this need of commercial banks, which are new tools of managing credit risk, mainly including credit default swap, total returns swap, credit linked notes and credit default option etc. This paper is written to just make the commercial banks in China know of the new products, and make good use of them to enhance their own ability of managing credit risk.In the key principle of effective supervision on bank in 1997, The Supervisal Committee of the Bank of Basel sums up main risks of the bank from eight respects, which are credit risk, the country and transfer risk, market risk, interest rate risk, liquidity risk, operation risk, legal risk and reputation risk. The credit risk occupies the special position, the study of the World Bank shows that the credit risk is the most common reason of bankruptcy to the bank. So, managing and controling credit risk is the most important content of the commercial bank. The credit risk not only brings potential loss, but also encourages the commercial bank carrying on the positive reforms.During the writing, I looked up many relevant references about credit risk and credit derivatives, which mainly come from overseas. On this base, I expound particularly the relevant conceptions about credit risk management and credit derivatives. According to the actuality of credit risk management in Chinese commercial banks, we further band them together and expound how to improve the ability of managing credit risk of our commercial banks. Then we turn to the core of this paper: the development of the credit derivatives market and application of the product. Finally we point out the problems we may encounter during using the new products, and make the primary prospect to its application. The topic of this paper is novel and is the urgent problem of the present commercial banks, so it has especial importance. I believe it can provide useful help for our relevant scholars and the operators of our commercial banks.