Banking Institutions In Crisis Management

Banking sector has apparent inherent instability. That is why banks implement credit risk management, liquidity risk management, market risk management and operational risk management in their routine work. These risk management activities have built safeguards against risks for banks.However, the routine risk management can not meet the needs of managing bank crisis effectively, as its vision is limited, its intensity is not enough. The unconventional management dealing with bank crisis is very poor compared with banks'habitual routine risk management.First, in everyday work, banks do not pay enough attention about bank run, bank failure, and other crisis situations, such as economic recession, market fluctuation, natural calamity, financial scandal of the key custom, internal and external financial crimes, big rumor, and so on. Some banks even have no sense about crisis. Here, people see an area in poor management. Second, in crisis situations, the ordinary risk management techniques adopted by banks can not work as effectively as in banks'everyday work. For an example, VaR method is not suitable for extreme situations.The divergence of routine risk management and unconventional crisis management brings two results. First, bank crises often reoccur with striking similarities. Second, banks often fall in passive positions in dealing with crises. Though some banks have gone out of crises successfully, there is no effective mechanism formed to manage bank crises due to poor summarization and poor research.In recent years, under the big pressure of bank crises, banks, bank regulators and Basel Committee on Banking Supervision begin to attach importance to crisis forecast, liquidity emergency plan, stress test, and disaster recovery. But these works are just at start. Systemic research has...