The Acting Mechanism And Institutional Innovation Of The Management Of Economic Capital In Chinese Commercial Bank Running

In the past 20 years, the most remarkable change in the field of banks management is that the stress has transferred to the comprehensive management of risks which take calculation and optimization of risks as the core .The New Based Capital Accord has broaden the scope of risks to credit risks, market risks and operation risks, and claimed the management of economic capital. A benign management of economic capital can ensure the bank has enough capital to withstand the unexpected losses. The excessive financial innovation has lead to inflated credit and risks, which resulted in this worldwide financial crisis. Introducing the management of economic capital now is propitious to strengthen the capital restriction and heighten the level of management of risks, so as to deepen the financial reformation. It is actually a competition of distinct systems in the competition of banks. To practice the management of economic capital is that to reduce the working risks through effective institutional arrangements.The unexpected losses is the part of loss which between the expected losses and the exceptional losses. It has strong uncertainties and it is the real risk of banks. The economic capital is the capital reserve for unexpected losses, which is the last live of defence for the actual risk that the bank can afford. The manager of the bank must devise strategies and administer EC, so as to optimize the collocation of bank can be regarded as a imperfection contract, which can bring out unexpected loss ,and the limited sense of human will lead to these risks. Therefore, it is necessary to design the institutions to restrict the limited sense and costs, and reduce the economic capital for unexpected losses. It needs to bring forth new ideas in business, products, flows, supervision, and the configuration of organizational administration. Now the management of EC ,in our country banks still is in the underway phase, we have many problems to resolve. Furthermore, we should carry environmental construction through the rights reformation, social credit system and external supervision.VaR is the maximal loss that the capital position is likely to bring on the given confidence level in a period in the future. We can draw EC when the VAR minus the expected losses. The Delta Model, historical simulation Model and Monte Carlo Model are most in use for the value of the market risk. The calculation of historical simulation Model is more easy but is not applicable for developing market .Monte Carlo Model requires abundant experiences and benign estimation. The efficiency of Delta Model depends on historical data. The calculation of the credit market has IRB, Credit Metrics Model, KMV Model and Credit Risk+ Model. Credit Metrics Model can not reflect the credit variety duly but KMV Model can Credit Risk+ Model needs less key data, which can enhance the speed of assembled losses. It still demands to set up a large-scale warehouse for credit data to put these models in use. The operational risk is a kind of loss which is resulted from fault internal procedure, personnel, system and external incidents directly or indirectly. The New Capital Accords suggests to employ the method of BIA, SA and AMA method to calculate EC of the operational risk. The method of IMA, LDA and SCA belongs to AMA. The method of loss-distribution is the most sensitive method to risk. The method of loss-distribution and inner-calculation are need of more that three years loss data, which leads to most banks can not make use of them. The method of record-card does not rely much on the history data but lays special emphasis on qualitative analysis. We can choose the method of basic-index at present.The system of banks means the pattern of organization and the regulation of action of it. It can reduce costs, allocate financial resources, provide the institutions of excitation and restriction. The institutional innovation of Chinese commercial banks has formed some characteristics such as compulsory system supply merely, system changes from top to below, and lagging the economic reformation badly. To set up a modern commercial bank system according to modern enterprises system is the direction of the reformation of state banks. The institutional innovation of state commercial banks should follow the route that government recide from direct interferences first, reform its share system, construct corporation administrations, then improve the internal management system, and set up a good external environment synchronously. The system innovation should be pulled by both government and non-government what we call dual-changes.EC is a very important factor to fix loans price. The extended rate control has lead to the management of it weak. Introducing EC to the system of achievement assessment can ensure the authenticity of profit assessment, the rationality of budgetary index and the variety of judgment. RAPM is the index which be concluded by the adjustment of risks in running on the basis of the index of accounting profit. It includes RAROC & EVA, The allocation of EC is a course that evaluate the level of EC and then dispose it to every organization and operation. By this allocation, we can compare the achievement of each unit exactly and fix price rationally for products and make strategic plan. The price of inner capital transformation is a suppositional in different parts or products. It is a major part of application of the management of EC and EVA. It will be influenced by the cost of circulation funds and expected income and tactful adjustments.To take a Chinese commercial bank as an example of apllying EVA. It focus its development on individual loan according to its running character, but its L/G has suffered a loss after the risk adjustment. Through comparing retail credit with corporation credit, we advise to develop the retail credit business. The retail business got off to a late start in China. To enhance the level of retail risks calculation and to realize the automation and standardization of business disposition are the key to raise the standard of risk management of retail business. The development space of retail credit business is much bigger than the space of corporation business, which can reduce the allocation of EC greatly. We should promote the construction of inner-grading of retail business positively and expand the house loan business.