Research On The Economic Capital Measurement And Allocation For Chinese Commercial Banks

With the financial markets increasingly developed and the risks commercial banks face increasingly complicated, economic capital management as a new concept of risk management, has been widely accepted by the industry. It is also increasingly becoming an important means of modern commercial banks to strengthen internal capital and risk management, not just to comply with domestic and international regulatory requirements. However, economic capital measurement and allocation and even the establishment of economic capital management system remain a challenge for the entire financial industry, even for the most advanced international banks had to admit that their system also needs to be further improved. Thus, since the concept of economic capital was proposed, the scholars and practitioners have been exploring how to make the concept operational, go beyond the levels of qualitative, and measure economic capital quantitatively and achieve precise allocation of economic capital. Based on this background, this dissertation devotes to discuss the measurement and allocation of economic capital, and tries to establish a management system of economic capital measurement and allocation which conform to the actual conditions of Chinese commercial banks and has a strong operability.This dissertation is divided into nine chapters. Chapter 1 is the introduction which introduces research background and significance, research contents and methods, literatures at home and abroad, and research innovation and deficiency. Among them, the focus of this chapter is the literature review of economic capital theory which introduces the latest research achievements of domestic and foreign scholars including the definition of the concept of economic capital, management framework of economic capital, measurement and allocation of economic capital, etc.Chapter 2 studies commercial bank economic capital theory. This chapter first defines three conceptions including commercial bank’s book capital, regulatory capital and economic capital, and analyzes their differences and relationship. On the base of clarifying the connotation of bank capital, fundamental principle of economic capital is analyzed. Then the chapter studies the connotation and extension of economic capital management of commercial banks. Finally, combining the historical evolution of Basel Ⅰ,Ⅱ, Ⅲ, the chapter demonstrates its impact on economic capital management of commercial banks, and points out regulatory requirements of Basel Accord for commercial banks and economic capital management of commercial banks become increasingly closer.In Chapter 3,4,5 credit risk, operational risk, market risk economic capital measurement approaches are studied respectively. (1) In Chapter 3 of credit risk economic capital measurement, the core variables and basic principles of credit risk economic capital measurement are first analyzed, and then the measurement models of PD and LGD these two key core variables are analyzed emphatically. On this basis, the credit risk economic capital measurement model is studied. Next, an example is used to illustrate the practical application of the KMV model in the estimates of PD of the credit risk. The final part of this chapter points out the realistic choice of Chinese commercial bank credit risk economic capital measurement model. (3) In Chapter 4 of operational risk economic capital measurement, the basic measurement approach and the advanced measurement approach of operational risk economic capital are first studied. On this basis, the final part of this chapter points out the realistic choice of Chinese commercial bank operational risk economic capital measurement model. (2) In Chapter 5 of market risk economic capital measurement, the standard approach and the internal model approach based on VaR of market risk economic capital measurement are first studied, and then the auxiliary methods of market risk economic capital measurement are elaborated. The final part of this chapter points out the realistic choice of Chinese commercial bank market risk economic capital measurement model.Based on the study of credit risk, operational risk, market risk economic capital measurement approaches, Chapter 6 studies how the commercial banks allocate economic capital reasonably and effectively. In this chapter, the economic capital static allocation model is first studied, and then the economic capital dynamic allocation model based on RAROC is studied. On this basis, the basic framework of economic capital allocation for Chinese commercial banks is proposed, and the basic content, pattern and process of economic capital allocation are illustrated.Chapter 7 is a comprehensive computation case. In this chapter, a case is given to illustrate the concrete application of economic capital measurement and allocation model. Under the conditions given in the text, the specific amounts of economic capital of the credit risk, market risk and operational risk commercial banks face are calculated and allocated to different branches precisely.Chapter 8 is the experiences of economic capital management of the advanced foreign commercial banks and reference to Chinese commercial banks. This chapter first introduces the practice and experience of economic capital management of the advanced foreign commercial banks, and then analyzes the status of economic capital management of domestic commercial banks. On this basis, the countermeasures and suggestions improving the economic capital management of Chinese commercial banks are proposed. The final chapter is the conclusion of the dissertation.