Research On The Economic Capital Management Of Commercial Bank Based On Value Creation

The financial globalization, financial liberation and financial innovation have made banks confronted sharply increased risks, therefore the bank bankrupts because of those take place from time to time. In order to improve the stability of financial system, in 1988, Basel Commission put forward the concept of"capital adequacy"and built a system for capital to buffer loss of risk. At the same time, the revolution of shareholder's value came up and the return of capital began to get more and more attention. The changing operating environment made the economic capital management which can better balance the relationship among risk, capital and return become the basic and principal axis of bank management.The dissertation takes the view angle of value creation, following this main clue, it deeply analyses the questions of whether economic capital management could achieve value creation and how to achieve etc. with normal analysis and empirical analysis.Economic capital management builds a road leading to value creation. The final goal of bank management is value maximization and value creation is the only way to achieve value maximization. Through adjusting EVA, it puts forward Bank's EVA value creation mode and by modifying RAROC, it provides Modified-RAROC value creation mode. These two modes reflect bank profit ability separately from the angle of gross value and efficiency, they take the cost adjustment of risk and economic capital into consideration and combine risk, capital and return altogether, so a road leading economic capital management to value creation has been built. Further, the dissertation adopts new institutional economics theory from the angles of assets transfer, investment inadequacy and financial distress cost etc. and theoretically proves that economic capital management can realize value creation.The measurement of economic capital is the premise for economic capital management to realize value creation, for the accurate measure result is needed no matter in terms of economic allocation optimization or in value creation performance assessment of economic capital. There are two ways for measuring portfolio economic capital, namely, through capital multiply and VaR. The paper is based on VaR method and uses CreditRisk+ model, and it is found that economic capital is highly sensitive to confidence level at relatively high confidence level. The optimization of economic capital allocation can a reasonable flow of resources and is the engine and key point of economic capital management advancing value creation. The dissertation has the objective function of EVA maximization, the restrictive function of Modified-RAROC hurdle return, economic capital limitation for allocation and possibly developing scale of all businesses and so on, and it adopts mathematic programming method for studying the economic capital allocation optimization to promote value creation. The study finds out that Modified-RAROC has significant effect on the result of allocation optimization.The value creation performance assessment of economic capital is guarantee for economic capital management to achieve value creation. The dissertation uses Bank's EVA and Modified-RAROC to measure value creation performance, in terms of microcosmic level, it assesses some bank branch, and with regard to macrocosmic level, it assesses China's 12 national commercial banks. The results show that before 2005, there is bank value distroy. Analyzing from the gross of value creation, state-controlled commercial banks are the main force of China's bank value creation. Seen from the efficiency of economic capital value creation, the twelve national commercial banks can be divided into three levels.Economic capital management is not an isolate system. Whether it could better creat valuation needs to the effectively support of relatived environment. For banks to effectively apply economic capital management, cultivating the value creation oriented strategic idea of economic capital management is the key point. Building the economic capital management system with clear layer classification, specific responsibility and efficient information communication is the institutional guarantee for banks'effective economic capital management. Compared with pyramid institutional structure, matrix institutional structure is more helpful for the effective implement of bank economic capital management.