The Research On Risk Management In Small-medium Banks

Since the reform of Chinese Banking system, especially in recent years, the small-medium banks(SMBS) develop rapidly and have become an important strength that can't be neglected in our financial system and national economy. Under the double background of the intensifying competition in Chinese banking industry and current world economic crisis induced by the subprime crisis in US, the SMBS are facing serious challenge and threat. The risk management of SMBS is gaining more concerns than ever before. This dissertation focuses on how to improve the ability of SMBS in risk management, especially in such fields as portfolio optimization, performance measure and capital management. The core and achievements of this dissertation can be generalized as follows:Firstly, a portfolio optimization model is constructed, under the constraints of both internal risk constraints and the supervisory requirement. The internal risk constraints consist of economic capital limit and other value limits in bank's internal risk control. The constraints make the optimization strategy derived from the model not only reasonable but also applicable. Economic capital limit is formulated with conditional value-at-risk( ), a Coherent Risk Measure. The constraint in the model is approximated with a set of linear functions. The market price of loans involved in the loss function is redefined as the ratio of present value of future cash flow to the loan, calculation of its expectation is showed with an example. CVaR CVaRSecondly, based on the cooperative game in game theory, ? -value is used to study economic capital allocation. In this method, the business lines and branches of bank are regarded as players in the game, the economic capital is considered as transferable utility. The dissertation discusses the difficulty in capital allocation and the steps in allocating economic capital with? -value. Then an example is given to so how it works. Analysis and Compare between different allocation methods show that ? -value is a proper allocation method. Then, the proof that ? -value is a coherent capital allocation is presented.Finally, this dissertation summarizes the main problems in performance measure of SMBS with a true performance measure plan. Then an alternative performance measure plan based on RAROC is proposed to solve the problems above, the details of which are discussed. This dissertation introduces alternative ways to determine the expected loss and the economic capital, for lack of data of Possibility of Default(PD) and Loss Given Default(LGD) and their floatation. The expected loss is proposed to be calculated with Migration Model and Discounted Cash Flow Model on the basis of Five-grade loan management system.