The Research On Chinese Commercial Bank Interest Rate Risk Under The Interest Rate Marketization

With the transformation of China’s economic growth and the deepening of economic development, all kinds of economic entities in the financial market are facing both opportunities and challenges. Under the background of the gradual easing of international financial regulation, global financial liberalization has enjoyed a period of prosperity. China’s financial market will inevitably suffer from the impact of the external market factors. The interest rate marketization, as an important part of Chinese financial reform, has now come to the last step of the deposit interest rate. Under the influence of internal and external factors, the market fluctuations in interest rates will be increasingly violent and complicated. Finance is the pivot of modern economy, and the commercial bank occupies an important position in the project. The operation and development of the banking industry can truly reflect the condition of a country’s economic and financial operation, through the perspective of commercial banks to make a certain understanding of systemic financial risk.Affected by the current international financial environment and the domestic interest rate marketization, China began to focus on commercial bank interest rate risk management. The economic development of our country has been affected by the government leading factors, long-term interest rate control for the rapid development of the banking industry provides policy to protect profits, the center of the commercial bank risk management does not on the level of interest rate risk. As the current financial market and business prospects changed to force banks to transition from market resources to the integrated management innovation, interest rate risk will replace policy risk to be an important object in risk management. Overall, our country commercial bank in the interest rate risk management theories and techniques are in the initial stage, the details of risk management in the lack of practical experience, the past single static metrics have not been able to accurately describe the financial market risk, VaR model is introduced and developed in such background.This paper first reviews the theory and measurement methods of interest rate risk management. Compared with the mature interest rate risk management theory system in foreign countries, the research and promotion of VaR model has just started in China. After giving an account of the process of interest rate marketization practice at home and abroad, the paper summarizes two different styles of the route of reform——"progressive" and "radical", in order to provide practical experience for China’s market-oriented reform of interest rates. Based on the specific conditions of the country, China’s interest rate market is to choose the "gradual" change model. On the one hand, the reform of the interest rate is the most important step of financial liberalization in China; on the other hand, the interest rate liberalization is a part of China’s financial opening. Based on the experience of history, this paper analyzes the impact of interest rate liberalization to the interest rate risk of commercial banks in China. In addition to the four basic interest rate risks, the biggest impact of opening interest rate is decrease of the deposit and loan spreads. Under the pressure of the reduction in traditional profits, the commercial banks will be more radical in investment business, decrease the liquidity of assets and change the debt maturity structure. The adverse selection and moral hazard problems in the credit markets will gradually deteriorated, the management by the external market impact is becoming increasingly apparent. The drastic changes about living circumstance bring a huge challenge to the commercial bank risk management, especially the management of interest rate risk. As the highest degree of marketization in China, the Shanghai Inter Bank Offered Rate (SHIBOR) is selected for the empirical analysis object, with the advantages of scientific management, large volume of transactions, transparent information, good credit and active policy support. On the base of sample sequences" statistics description, the paper uses GARCH model and appropriate assumed residual distribution to fit the yield sequences’alterable volatility, then calculates the VaR of sample series by parameter method. After the failure frequency test of VaR series, we demonstrate that a VaR model has an effectively capacity of measuring the interest rate risk.To sum up, under the background of interest rate marketization, this paper explores the new changes of domestic commercial bank interest rate risk. With selecting the Shanghai Inter Bank Offered Rate (SHIBOR) as the empirical research object, the paper tries to show the true level of interest rate risk of commercial banks in China by means of GARCH-VaR model’s computation.In combination with China’s specific conditions, the thesis expects to make certain academic contribution to the commercial bank’s interest rate risk management theory, measurement model and the innovation of supervision.