Study On The Interest Rate Risk Management Of Commercial Banks In The Interest Rate Market

From 1970s, Mackinnon and Shaw’s study of financial repression and financial deepening caused an environment of financial liberalization which gradually affected many countries going on the path of interest rate liberalization. The reform of interest rate indeed promoted the national economy, and improved the competitiveness of commercial banks. However, the large fluctuation reduced the interest margin of banks. Therefore, the interest risk will lead to the bankruptcy of the financial institutions which are not prepared to reduce the interest risk.Since the reform and opening up, China’s interest rate liberalization has been running through the whole process of the development of financial markets. In 1996, the central bank established a national unified interbank lending market. From then on, the central bank has gradually released the control of interest rate. Therefore, the interbank landing interest rate liberalization, the bond market interest rate liberalization and the loan interest rate liberalization were realized, which are according to the sequence of the foreign currency and the local currency, the loan and the deposit and the large amount and the small amount. After the introduction of representative Internet financial products which is Alipay, it greatly promoted the deposit interest rate liberalization. In 2012, the registered users of Alipay are more than 700 million. It provides a breakthrough for the deposit interest rate market. Therefore, the interest rate gradually floated to 1.5 times the benchmark interest rate. In 2015, Zhou Xiaochuan said releasing the ceiling of deposit interest rate is the probability event, suggesting that the interest rate liberalization is just around the corner. In the early days of the reform of the interest rate market, the commercial bank interest risk exposure is not large because the interest rate is not fully liberalized. However, with the gradual liberalization of interest rate control, commercial banks are faced with interest risk in different degrees. In a word, commercial banks hold most of the financial capital in China. If the interest rate risk increases, the banks will face bankruptcy, which will endanger the security of our financial economy.In order to manage the interest risk, this paper analyzes the impact of interest rate liberalization on the interest risk of commercial banks from the perspective of interest rate liberalization. In the first part, the paper introduces the relevant background, methods and the innovation of the interest rate market and the interest risk of commercial banks. In the second part, this paper firstly introduces the process of the reform of the interest rate market in foreign countries and summarizes the achievements and shortcomings of the reform. Moreover, the reform of the interest rate market in China is described in detail. In the third part, this paper introduces four kinds of interest rate risks, which are repricing risk, benchmark risk, yield curve risk and option risk. In order to study the impact of interest rate market on commercial banks’interest risk, this paper introduces three models to measure interest risk, that is, interest rate sensitivity gap analysis, duration gap analysis and VaR analysis. Finally, the change of interest risk of commercial banks is introduced in the process of interest rate liberalization. In the fourth part, through the empirical research, the overall interest risk of commercial banks in China is studied by the GARCH-GED model which is based on the VaR method. Moreover, the interest risk exposure of commercial banks is analyzed in order to give some advice. At last, in the fifth part, the paper makes a summary and gives advice from the commercial bank risk management.This paper has the following innovations:In the process of the interest rate market reform, the interest rate market reform is studied combined with the method of comparison, qualitative and quantitative analysis. According to a large number of data and charts, the paper analyzes the interest rate risk of commercial banks in our country, which can be used as an innovation in a certain extent; through the empirical research, the overall interest risk of commercial banks in China is studied by the GARCH-GED model which is based on the VaR method. Moreover, the interest risk exposure of commercial banks is analyzed in order to give some advice. It can not only studies the interest rate risk based on the statistical analysis, but also intuitively sees the interest rate risk faced by commercial banks in the interest rate market.This paper has the following shortcomings:considering the need of analysis, the commercial banks are limited to the large commercial banks and joint-stock commercial banks, not including the city commercial banks and rural credit cooperatives. Moreover, in the selection of the literature, because the time of the interest rate market reform is relatively late, the relevant literature is not much. Compared to the domestic literature, the foreign literature is more. However, the way to obtain the foreign literature is limited, so the relevant literature needs to be improved. Finally, in the empirical study of the model, the test of VaR has only taken a simple failure rate test, which is not verified by using the mathematical statistics.