The Research Of Risk Management Of Joint Liability Lending Of NY Bank

Abstract:Joint liability lending is not a new thing in our country, the loan model has been used for many years in rural credit. As joint liability lending borrowers can effectively solve the main case in the absence of collateral financing problem, and it can reduce the information asymmetry between bank and the borrowers, we can conclude that joint liability lending fits the needs of SMEs’loans, so it sought after by the majority of SMEs.However, when group lending used by SMEs, it has encountered a lot of troubles, such as how to choose the members, how to avoid conspiracy and trade risk. Because joint liability lending used in SMEs in a short time, the mode is not perfect to meet SMEs’characteristics. And many enterprises can’t accept group lending because of they don’t want to undertake the joint liability. For the commercial banks, they are unwilling to engage in joint liability lending because of its low profit and high risk. The reasons are SMEs’credit level is not high, and SME’s credit rating system is not perfect, so that banks can not accurately identify the risk of loans, so how to improve the mode of group lending and how to control its risk is the main purpose of this study.This article analysis joint liability lending from two aspects, one is theoretical analysis, another is case study. In the theoretical analysis, this paper introduce how the joint liability lending avoid risk, and reveal its risk factors. Hereafter, this article cited a case about joint liability lending. This case analysis group lending’s problem during its operation, such as the members of the group conspired, credit assessment method is not appropriate and the vulnerabilities of bank management systems which lead to rent-seeking behavior of employees.Then this paper propose several solutions to the risk management loopholes. Firstly improving the joint liability lending model, include the identification of joint liability and establish a mutual guarantee fund. Secondly, to increase the bank’s efforts to control operational risk, include improving credit rating system. Finally, strengthening the safeguards building, include establish dynamic enterprise archive system and strengthen the construction of laws and regulations.