Research On Risk Management Of Bank Financial Holding Companies In China

With the acceleration of China’s interest rate marketization, financial institutions particularly commercial banks have sped up the pace of the mixed operation of finance. Setting up financial holding companies is an important form of the mixed operation of finance. This paper discusses the risks of bank financial holding companies and their risk management through a series of analyses.The paper provides a detailed overview of bank financial holding companies. Firstly, the paper introduces the concept of bank financial holding companies and fixes this article’s definition of them. Then the paper gives a comprehensive analysis of the risks of bank financial holding companies as opposed to individual financial institutions, as well as introduces the theory on financial holding company’s risk management.After learning the basic knowledge of the bank financial holding company, this paper discusses the risk management and the existing problems of China’s bank financial holding companies. Besides, the paper finds that bank financial holding company’s risk-resisting ability is superior to regular banks by multiple linear regression. We consider that banks especially large state-owned banks buying other financial institutions is the future direction of mixed operation of finance in China. Therefore the paper simulates hypothetical mergers between actual banks and firms in other financial industries using industry and company data to analyze the potential risks and returns of commercial banks in China. Studies have found that (1) corporate data is more likely to support the banks’external expansion than industry data, (2) banks employing a certain proportion of non-banking mergers and acquisitions can effectively disperse risks, but beyond this range, it may actually increase the risk, (3) commercial banks with strong capital can make acquisition of existing insurance companies and securities firms, but must remain the core of banking.After more than 10 years’development of China’s bank financial holding companies, they have had the ability to cope with some certain risk problems, and the financial mixed development is still in the primary stage. So Current risk management instruments can still deal with a variety of financial holding company risks. But with the financial holding companies developing and mixed financial deepening, risks that the bank financial holding companies face in the future will be more complex. However, at present, risk management instruments of financial holding companies in China are not advanced, there are still many problems. In order to better respond to the expansion and development of financial holding companies, we must improve the risk management system and enhance risk management instruments. Based on a series of analyses above, the paper puts forward some recommendations in improving the external environment, optimizing the company’s internal environment and improving the risk management measures.