The Research On Management Of Economic Capital Of Commercial Bank Based On Internal Control Valuation

In the21st century of financial Integration and globalization，when there arefinancial product innovation and the same industry competition，the risk managementof commercial banks belonging to the high risk operation industry have had to be thenormalization management.The current risk management mode of commercial bank including the internalcontrol management and economic capital management, both of them aim at riskmanagement. Because of the two modes are in a parallel state, many problems havecreated in their operation, just like increasing the cost of risk management anddelaying the efficiency of it.Based on the analysis of management of economic capital and risk management,internal control and risk management theory, this article concludes that the economiccapital management and internal control system own the basis of integration. Throughthe analysis of malpractice of Chinese commercial banks risk management system,based on the integration of risk management theory, the economic capitalmanagement theory, the principal-agent theory, the theory of internal control,combined with the commercial bank’s risk control goals and business objectives, thisarticle proposes an effective mechanism that can cover the overall risk management ofcommercial banks--embedded risk economic capital management system. Thissystem combines comprehensive risk management internal control framework andeconomic capital management, forms a comprehensive risk management system ofcommercial bank. And finally, it helps to prevent risks of commercial banks, createvalue and develop sustainably.Embedded economic capital risk management theory is refers to the economiccapital risk control system in the framework of commercial bank comprehensive riskmanagement, this system merged and complement internal control framework ofcomprehensive risk management with economic capital risk management modecompletely. It bases on the system; takes risk measurement as core, takes performance risk as evaluation measures, forms the risk control system which is dynamic,comprehensive and conforming to the management target of commercial bank.The target location of embedded economic capital risk control system is tomaximize the enterprise value under the degree of tolerable risk. Control structurecombines the COSO-ERM structure with the progress of economic capitalmanagement. In the eve progress of economic capital measurement, configuration andperformance evaluation, we should clear the goal of risk management and set up theelements of comprehensive risk management. Considering the risk of complexity andthe virtuality and uncertainty of economic capital, in the progress of design thecomprehensive risk management framework, we should try the fusion of controlsystem in the view of risk category and the progress of economic capital managementand so on. Also we research the applicability and variability of internal control systemin the economic capital management, to take the commercial bank‘s operational riskas example to explain the design of the progress.In the base on building the theory of embedded economic capital comprehensiverisk management, take the data of China’s commercial banks to use the empiricalresearch explain the theory of combining the economic capital management andinternal control system. The consequence shows that: first of all, based on the basicindex of internal control, from reality of the main factors of the commercial banks’risk and combine the risk control ability of commercial banks to measure theeconomic capital which match the control risks, more to provide reference ofdistribution of economic capital. This method is an effective way to measure thecontrol risk of China’s commercial banks.Second, the revised economic capital operation risk measurement model canreflect our commercial banks’ current situation which the bank’s internal control areon weak, the commercial banks’ managers can understand the defect of internalcontrol by the measurement, and make the measurement of control risk moremeaningfully.