Study On The Interest Rate Sensitivity Risk Problem Of Chinese City Commercial Bank

In the Principles for the Management and Supervision of Interest Rate Riskpublished by Basel Committee, interest risk is a kind of risk which brought by negativefluctuation of rate. Recently, the competition between commercial banks gets warmer. Onthe other side, the economic reformation and financial reformation are deepening in China,and interest rate mercerization reform has gradually entered the rapid rail. There’s controlon interest rate risk for a long time in China, hence management level is relatively low nomatter theoretically or empirically. Compared with the large and minimized banks, citycommercial banks are in a weaker position in the scale, capital and human resources.They hardly set up effective mechanism to prevent interest rate risk and faced withenormous impacts and challenges.International banks have established institutions for interest rate risk management.Their functions include researching and developing advanced techniques and methods.Many successful models are emerging and widely used, such as interest rate sensitive gapmodel, duration model, which are still main technologies of risk management. Based onthe introduction of three models in use to keep away the risk, this paper collected the datafrom2006to2010of5firms: Bank of Beijing, Bank of Nanjing, Bank of Ningbo, Bankof Chongqing and Hankou Bank, and analyzes their interest rate sensitivity with interestrate sensitivity gap model and duration-convexity model.Empirical results show: Chinese city commercial banks have strong interest ratesensitivity, and the funding gap, interest rate movements, change of assets-liabilitiesstructure, and interest rate change scope of different assets debt project have significanteffectiveness on commercial banks’ performance. Chinese city commercial banks aresuffering from backward concept, unhealthy mechanism, experts inadequacy. Aiming athow to defend interesting rate risk, this paper proposes that city commercial banks shouldenhance management gap, improve imbalance of the balance sheet, extend intermediarybusiness, and establish specialized institutions to manage interest rate risk. Citycommercial banks should especially focus on multivariate business rather than depositsand loans, so as to keep risk under an acceptable level.