Commercial Bank Economic Capital Allocation Optimization Strategy Research Based On RAROC

The risks of commercial Banks mainly including market risk, credit risk and operational risk three big risk. Credit risk is the main risk among them. Since the 2007 financial crisis, the world’s major Banks have increased the risk control, especially control of credit risk. The new Basel agreement III duct for commercial bank management more strict requirements are put forward. For Banks in China, influenced by economy downward, China’s commercial Banks non-performing loan ratio 10 straight quarterly rise since 2013, the balance of non-performing loans in the fourth quarter of 2011 since 16 straight quarterly increase, at the end of the fourth quarter of 2015, commercial Banks non-performing loan balance is RMB 1.2744 trillion. Therefore, how to use scientific and effective way for commercial Banks’ risk management is particularly important.There are three kinds of commercial Banks’ capital concept, it is a book capital, the second is the regulatory capital, three is economic capital (EC), also known as the venture capital, in the period of a certain confidence level and hold, it is a commercial bank to resist the expected loss and should have a capital, it can be configured to the individual business, assets or branches. RAROC (Risk large-company on Capital Risk Adjusted Return on Capital), is refers to a transaction, a product or service of all related benefits in the net of expected losses and expenses incurred divided by the ratio of economic Capital occupied. Different from traditional commercial bank performance evaluation model, the RAROC model overcomes the defect of not fully reflect the risk cost, the profitability of commercial Banks directly associated with risk, prompting Banks to expand their business on the premise of prudent business and create profits. We should establish on the basis of economic capital management system, promote the RAROC as the core of economic capital allocation model, the reasonable configuration of scarce economic capital of commercial bank in the various business lines. At the same time, can be in terms of performance appraisal, assessment of business, and combining with RAROC indicators, making the use of the commercial bank economic capital and form a dynamic system.This article is divided into six parts. The first chapter is simply presented in three sections:the selected topic background of this article, research contents and methods, the research status both in China and abroad, clarify the theoretical basis and significance of this article. The second chapter, systematically introduces the commercial bank economic capital, the meaning of RAROC and commercial bank credit risk based on RAROC economic capital allocation methods. The third chapter is the model based on RAROC which is the key point of the article. The fourth chapter detailed elaboration of the current capital allocation scheme of the Hubei XX Bank Branches. At the same time, points out the existing problems. In view of the business situation of the Hubei XX Bank Branches, gives the credit risk economic capital allocation optimization scheme based on RAROC. At the same time under the same scenario simulation and the third chapter expounds the current schemes are compared, and the mathematical calculation analysis it is concluded that the optimization scheme based on RAROC more help to improve the efficiency of bank capital allocation. The fifth chapter is a sublimation, and points out that the RAROC method in the management of commercial Banks and the subsequent application, in the late development of the commercial banks, RAROC method can be deep into the various business level, such as the loan pricing based on RAROC, performance evaluation to optimize the capital structure in the banks. By building a complete system of dynamic management cycle based on RAROC to continue to improve the economic capital allocation efficiency. The Chapter six is the study of this paper and the conclusion of this paper.