Research On Interest Rate Risk Management Of China's Commercial Banks

The worldwide financial liberalization became popular because of the collapse of the Breton Woods System in 1970s. The developed countries in West gave more freedom to finance and made the interest rates more market-oriented. Thus, fluctuating interest rate was more frequent day by day, which had a serious impact on banks' earnings. As a result, the risk of interest rate became one of the major risks that a commercial bank faced.Given that in China the interest rates are under the control of our government, commercial banks have little self-awareness on how to take precautions against rate risks. Banks in China are lack of ways to predict risks and experience on how to manage them as well. Therefore, it's urgent for our banks to improve their abilities to withstand risks with the help of integrating advanced technology and theory with our practical situation.This paper, which perceives market-oriented reform of interest rate as the background , introduces the negative influences on various aspects in banks as a result of the increasing interest rates, including the profitability, the structure of assets and liabilities, the credit conditions, and current assets. Furthermore, this paper gives an insight into the causes of these influences. By these analyses, we can find out the deficiencies of domestic management, such as internal imperfections, and the lack of sound management system and effective ways to control rate risks, etc. Drawing more foreign referential experience on this basis, I make an investigation on management practices of China's banking industry risk, including attempt to use asset-liability management techniques to manage rate risk. Finally, I suggest that banks should establish specialized institutions to supervise rate risk, expand the development of intermediary business and form relevant rules of the interest rate in order to protect the benefits of banks.