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Research On The Measurement Of Commercial Banks Reputational Risk In China

Posted on:2015-07-15Degree:DoctorType:Dissertation
Country:ChinaCandidate:M HuFull Text:PDF
GTID:1109330467975613Subject:Finance
Abstract/Summary:PDF Full Text Request
The internal structure and order of the global banking system have been seriouslyhit by the U.S. subprime mortgage crisis in2007and the Greek sovereign debt crisis in2009. Many banks encountered incidents that damage their reputation, which is a hugethreat to the normal functioning of the entire banking system. The regulators and thedecision-makers of commercial banking, domestic and overseas, increasingly recognizethe importance and necessity of the reputational risk management, especially themeasure of reputational riskHowever, measuring reputational risk is still at a preliminary stage, due to the lackof the following three aspects. Firstly, the management and the regulatory agency ofcommercial banks have not reached a consensus on the complexity, systematic natureand urgency of the reputational risk; Secondly, it is complicatedly correlated to otherfinancial risks, so it is difficult to separate the reputational risk from a variety offinancial risks; Thirdly, researches on how to effectively measuring reputational risk isstill in its infancy, and few mature results has been delivered, which suggests a lack ofeffective methods for the commercial bank regulators to assess the reputational risk.Actually, measuring reputational risk is the core of reputational risk management.Therefore, it is of great importance, both theoretically and practically, to identify andmeasure reputational risks of commercial banks, adopting knowledge from economicsand statistics, and further explore the corresponding economic capital requirements ofcommercial banks.This thesis follows the classic paradigm—identifying practical needs, determiningthe research framework, building a model and proving it, learning from the experiencesand developing policy recommendations. Then it integrates stakeholder theory, indirectreciprocity theory and reputation transfer theory, focusing on the game models for theformation and processing of commercial banks’ internal reputational risk. In addition,from domestic and foreign banking experience and reputational risk managementpractice, we could deeply analyze the issue of measuring reputation risk and propose afeasible policy recommendations to strengthen the internal control of reputational riskand build a regulatory mechanism.Firstly, this thesis defines the reputational risk, and also analyzes the basicframework and ideas about the measuring reputational risk of China’s commercial banks.‘Measuring reputational risk’ here refers to measuring the risk itself taking the probability of the occurrence of a risk as the standard, and measuring the economiccapital which commercial banks needs to compensate for the unexpected loss. Thisarticle sets a basic framework of measuring reputational risk so as to provide ideas f orfurther study. Taking the suddenness of reputational risk, poor availability of data and thegeneralization of measurement model into consideration, following requirements for theexternal supervision and the internal assessments of commercial banks, we decide tocombined with Bayesian network method which is chosen from a variety of models andmethods to build a reputational risk index system that would be suitable for China’scommercial banks.Secondly, this thesis studies the reputational risk measurement of commercial banksand economic capital measurement. In terms of bank’s reputation risk measurement, thethesis builds on a basic evaluation system to measure the reputational risk of China’scommercial banks by collecting data from the Bank of China, Agricultural Bank,Industrial and Commercial Bank of China and China Construction Bank and other bankswhich are fairly representative. Besides, this thesis draws on the experience andreputation of domestic and international banking risk management practice. It also usesthe Netica packages to form Bayesian network model and get the conditional probabilitydistribution among all the nodes by learning Bayesian network parameters. Also, itanalyzes the network structure of reputational risks of commercial banks by using ofSuper decisions Packages and learns the conditional probability obtained to calculate theweights of related network node and measure the reputational risk of commercial banksin final. In terms of economic capital measurement, this thesis discusses the economiccapital requirements that are associated with commercial bank’s reputation risk. Giventhe poor availability of data about reputational risk, we use a Monte Carlo method to setthe scene of several parameters to get the corresponding data loss of reputational risk.We obtain statistical characteristics of the data distribution by studying the statisticaldistribution of the reputational risk’s data loss, and according to the relevantrequirements of Basel II, we calculate the maximum amount of loss on reputational risk99.9%confidence level in a period of time, that is, economic capital requirements.Thirdly, this thesis summarizes and draws the effective practice of domestic andforeign commercial banks on reputation risk measurement and management. Itsummarizes typical cases and draw on experiences. We have found that:1. China’scommercial banks should improve the operation mechanism of measuring reputationalrisk, strengthen internal control and external supervision;2.China’s commercial banksshould foster awareness, optimize method and models and adhere to processmanagement of measuring reputational risk;3.China’s commercial banks should establish a timely and uniform information disclosure system and a maintainingmechanism which focuses on the confidence of stakeholders;4. Regulatory agencies aresupposed to strengthen routine inspection, advising and reasonable guide to publicopinion.Finally, this thesis proposes policy recommendations to improve the reputationalrisk measurement of China’s commercial banks, which include the following threeaspects:1. Improving the models and forming the extension system of measuringreputational risk;2. Strengthening internal control mechanisms of China’s commercialbanks reputational risk measurement;3.Building external monitoring mechanism ofChina’s commercial banks reputational risk measurement.The research in this thesis, with both theoretical and practical aspects, is followingthe theory and also could be applied in practice. Based on the theory of completeinformation static game model, this thesis analyses the internal factors that howcommercial banks’ reputational risk formed. It empirically constructed commercial bankreputational risk metric system which is suitable for China, and it measures thereputational risk and economic capital requirements associated with reputational risksthrough the relevant computer science, mathematics and statistics theory, thereby itprovides a basis for the bank management. This demonstrates certain advantages in thedepth of theoretical research, applicability and innovation.
Keywords/Search Tags:Commercial bank, Reputational Risk, Reputational Risk Measure, EconomicCapital, Bayesian Analysis
PDF Full Text Request
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