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A Research On The United System Of Risk Management And The Model Of Capital Allocation For Commercial Banks

Posted on:2005-07-22Degree:DoctorType:Dissertation
Country:ChinaCandidate:C Q WeiFull Text:PDF
GTID:1116360152970747Subject:Business management
Abstract/Summary:PDF Full Text Request
Since 1980s, the mode of risk management for international banking has achieved great development. The management of assets liabilities has been widely accepted and the risk management of commercial banks has evolved to capital allocation. The matching of capital and risk and the risk management through capital allocation become a core problem. In order to effectively implement management on entire risk of commercial banks through capital allocation, the internationally prevailing method at present is to establish three lines of defense, which are reserve for bad debts, capital adequacy ratio and deposit insurance system.The conclusion of the paper is, a comprehensive regime and system of risk management should be established for risk management of commercial banks. Credit risk is the most important risk the commercial banks confront. For a reasonable risk management system, the commercial banks should effectively prevent the credit risk through pre-loan analysis, then the risk that could be transferred should be transferred through risk transfer market, finally the risk that must be undertaken and can not be transferred should be prevented through reasonable capital allocation.The paper first discusses how to reduce credit risk of commercial banks through pre-loan analysis. The actual reason why enterprises need loans is becauseeach enterprise has an assets conversion cycle. Assets conversion cycle is a process that financial assets are first converted into physical assets which are in turn converted back into financial assets made by enterprises. Commercial banks should analyze the actual reasons that enterprises need loans from the aspect of conversion at the very beginning and confirm whether or not enterprises need loans, and analyze whether or not enterprises are capable of repaying loans on time within the framework of its assets conversion cycle, and identify those enterprises which intentionally use loans to take risks or not intend to repay loans at all. Pre-loans risk prevention should be made through the analytic methods that combine industrial risk analysis, analysis of internal key operating and administrative problems, raw material supply, production management and marketing of credit applying enterprises.The paper researched how commercial banks transfer market risk. The research indicates that risk transfer market is an indispensable part of market economy. Risk traded in market could increase the utility of trading parties and optimize allocation of resources. Transaction of risk is a kind of Pareto improvement. By applying the CAPM, this paper shows that risk management could increase companies' value and add more value to shareholders. Under strict hypothetical condition, MM theorem proposes that financial strategies of companies have no influence on the companies' value. But the strict hypothetical condition in MM theorem is not existent in reality. The actual financial market involves financing cost; companies could reduce the cost through risk management. The actual financial markets also have cost arising from financial distress; companies could reduce the cost arising from financial distress. The actual financial markets have taxes; companies could reduce taxes payable through risk management. Companies could resolve 'agent problem' through risk management and enable companies to choose investment projects more effectively. Commercial banks could increase their own value and add more value to shareholders through performing the management of risk transfer in financial risk transfer markets. Commercial banks could execute transaction management onmarket risk of interest ratio when they are implementing risk management through risk transfer markets, and commercial banks could execute risk management of exchange ratio by making use of risk transfer market. Commercial banks could also transfer the credit risk by making use of credit derivatives in risk transfer market.This paper performed research on current situation of risk management through capital allocation for commercial banks both at...
Keywords/Search Tags:Commercial Banks, Risk Management System, Capital Allocation, United Model
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