Commercial Bank Economic Capital Management Research

One of the important issues of commercial bank is to seek a balance between risk and return. Since capital is limited, how to get high profits in the constraint of capital, not only requires the bank accurately measure the risk of holding assets, but also find a unified standard in different measurement methods. The unified standard is economic capital.According to different statistical caliber and purpose, there are book capital, regulatory capital and economic capital. Economic capital is what compensates for the bank’s unexpected loss in a certain confidence level and a period of time. From the point of view of risk, economic capital has the same function as regulatory capital, which is absorbing loss when the bank is at risk. The difference is that regulatory capital is recognized externally by the authorities, reflecting the cost of shareholders, and tangible, whereas economic capital is recognized internally by the bank managers, reflecting the maximization of shareholder equity, and intangible.Since the 80 s of the 20 th century, banks have developed greatly in risk management from asset liability management to capital allocation. Matching risk and capital has become a core issue, the results of which are summarized in Basel Accord.This paper starts from the birth background of Basel Accord, elaborating the evolution of capital regulatory requirements and the concept of economic capital and loss. Next it studies the status quo of economic capital management in China and points out the existing problems. And then it focuses on the methods of measurement and allocation of economic capital, including economic capital measurement models of three major risks of banks, and provides an economic capital management scheme of a domestic joint-stock bank based on an empirical angle.There are three aspects distinguishing this dissertation from other similar studies: close to the regulatory requirements of Basel Accord, to improve the theoretical model based on the practical point of view, adopting the latest case study. The methods and the scheme proposed have valuable reference to many small and medium-sized banks domestic.