The Risk Management Of Financial Innovation Of The Commercial Banks

Financial innovation is a way by which financial subject could avoid risk. It uses new opinions, management styles and techniques to change combination of traditional elements in financial system. In this way, financial innovation can promotes new tools, new service, new market and new system to improve the efficiency of capitaloperation system, to obtain more interest and to seize the initiative of markets. Financial risk is the possibility that the innovative product made by innovation subject can’t proceed smoothly or the income of the product isn’t as much as expectation. The financial risk is made up of two parts. One is conventional risk, the other is special risk which only exist with innovation. This is a unique and specificappearance of the financial innovation.In this article, it makes a conclusion of the trend and achievement of financial innovation of commercial banks, in our country. It analyses from two different angle, macroscopic and microscopic. According to the existing experience of risk management and research findings, the article makes a description of risk classification, risk forming, risk discrimination and measuring. On this basis, it proposes strategy of risk management that is fit for commercial bank in China. The article relies mainly on qualitative study while take quantitative study as secondary reliance. It tries to analyze the risk of financial innovation from a holistic perspective and in order to make it be a reference when innovation subject and supervisory agency meet with risks. They could design more effective protective methods.The article is divided into 4 parts:The first part is introduction. First of all, it makes a brief description of the writing background and significance of the article. In the literature review, it starts from the generation of financial risks and then describes the definition of risks used before. Finally it leads to the conception of risk management and the main theme of the article-the risk management of financial innovation.In the second part, it analyses the driver of financial innovation from the angle of macro and micro. Then it makes a classification of financial innovation. On the basis of this, it put forward the views that innovation can be concluded as two parts:the narrow sense and the broad sense. At last, it describe the current situation of financial innovation of commercial banks in our country and sum up the achievements of financial reform since then.In the third part, it analyses all kinds of innovation risks at present. Generally speaking, we can divide all risks into two categories:conventional risks and special risks. Conventional risks contain credit risk, market risk, liquidity risk, operational risk and legal compliance risk. Special risks contain design risk, price risk and speculative risk. Than the formation mechanism of these risks are analyzed and put forward two important means of risk control:risk identification and risk measurement. Identification, it advises to build risk monitoring index to judge each kinds of risks. The article introduces two ways to measure risk-VaR and pressure test.In the fourth part, the article put forward the risk control strategy from three aspects. In risk response, we could take steps from early warning, avoiding, dispersion, prevention, assessment, transfer and so on. For the internal control of risks, we can do it in terms of banking, perfecting mechanism and strengthen personnel management. Regulation of the main and self-discipline organization should be clear of their responsibilities, work with coordination and cooperation and perfect legislation and industry norms.