Chinese Commercial Banks To Interest Rate Management Studies

Influenced by the Theory of Suppressing & Deepening of Finance after 1970s, there arises a worldwide wave of interest rate liberalization. Along with the liberalization comes large fluctuation of interest rate, quick rising of interests rate risk of commercial banks and thereafter many financial institutions' bankruptcies due to great losses caused by interests rate risk. After over twenty years' reform and open-up, China's interest rate liberalization has come to the final and also the most crucial stage條iberalization of deposit & lending rate. What's more, there have been signs of acceleration of the liberalization recently. At the beginning of 2002, the central bank chose eight rural credit cooperatives as the experiment units of interest rate liberation: greatly increased the band by setting a ceiling of 50% for deposit rates and of 100% for lending rates. At the start of 2003, the central bank expanded the experiment of interest rate liberalization of rural credit cooperative to the whole country.Interest rate liberalization means that the state will gradually cancel the policy protection of spread between lending and deposit rate for commercial banks and grant commercial banks the right to price their asset & liability products independently. But since the interest rate has always been set by the state up to now, the determination of price (interest rate) of asset & liability products and the control & management of interest rate risk has been a weak link for domestic finance field both of academy and practice. The academy field had only some studies on the measure and control of interest rate risk of commercial banks, and had done little about the study on the latest technology- internal funds transfer pricing in the field of interest rate management of developed country's commercial banks. And the academy study has been focused on the practice and experience of developed country's commercial banks, not deep and thorough about the practice of China's interest rate liberalization. The practice field gets even behind in interest rate management. The low level of interest rate management, to some degree, has been reflected in the non-rational pricing of some limited market-oriented pricing products and the impact upon the net interest revenue of commercial banks imposed by several adjustments of the official interest rate.With the deepening of the reform of interest rate liberalization, the errors in the pricing of lending & deposit and the interest rate risk against commercial banks brought by too large interest rate risk exposure could be fatal had the domestic commercial banks' poor interest rate management not been improved. Therefore, during the progress of China's interest rate liberalization, how to import foreign advanced management concept and technology to regulate the pricing behavior, prevent interest rate risk and improve the interest rate management has been one import and impending task for domestic commercial banks. Under this background, this paper, based on systematic study on the latest technologies of developed countries' commercial banks in interest rate management, especially in internal fundstransfer pricing, and responding to the China's present development of interest rate liberalization, combines commercial banks' interest rate management and interest rate liberalization together to study the following issues: (1) impact upon commercial banks' interest rate management by interest rate liberalization; (2) commercial banks' game strategy with central bank during the progress of liberalization; (3) domestic commercial banks' present interest rate management, their weakness and the direction and principle for the future reform. So this paper has great theoretic and practical significance.This paper is divided into eight chapters."The First Chapter: Introduction" introduces the background and significance of choosing the topic, the latest studies on commercial banks' interest rate management at home and abroad and the study method and main innovations of this paper.