China's Commercial Banks Interest Rate Risk Measurement Study

In recent years, as China's WTO accession and the continuous progress of the interest rate liberalization reform, inter-bank competition have become more drastic and interest rate changes have become more frequent, interest rate risk is increasingly becoming one of the major risks that the financial institutions face with. But for a long time, our commercial banks are short of management experience of interest rate risk. Most of them have no interest rate pricing mechanism and lack of interest rate risk measurement and controlling system. Thus, how to deal with the risks associated with interest rate environment changes, how to identify, measure and manage interest rate risk become the urgent problem have to be resolved by commercial banks. The key for raising the level of interest rate risk management is to establish a scientific interest rate risk measurement system.This paper comprehensively analyzes the commercial bank interest rate risk measurement techniques used commonly. The representative models include Interest rate sensitivity gap analysis, duration analysis and VaR analysis. But duration analysis is more precise than the interest rate sensitive gap analysis and we don't have enough conditions to induct VaR analysis. So recent now, the most appropriate model for the measurement of our commercial bank interest rate risk is duration model. Through analyzing of data, it shows that our introduction of the duration model is feasible. The application of duration technical is still in the exploration stage and faces certain constraints. As interest rate liberalization bring certain effects to commercial bank management, it necessarily affects the application of duration model. Universal application of duration model needs cooperation of other policies such as interest rate liberalization, further development of the bond market and personnel training for the limitations of duration model itself and the reality of our adverse conditions.