Research On Risk Management Of Commercial Banks’Product Innovation

The bankruptcy of mortgage-backed lending institutions, collapse of investment banks, major fluctuations in stock markets and a series of events triggered by the U.S. subprime mortgage crisis, not only runs the developed countries dominating in the world’s financial industry pattern into difficulties one by another, but also makes the developing countries whose financial products market is relatively backward aware of the huge risk hidden behind the financial innovation. The financial derivative product innovation of Chinese commercial banks has come into the early stage. Some useful attempts has also been carried out and initial results has been achieved in asset securitization. However, innovation in financial products not only has greatly promoted the economic development, but also brought greater financial risks. Therefore, it has become an indispensable part of the commercial bank financial innovation process to further strengthen the identification of financial products innovation risk and its risk management factors, and establish effective risk management and risk prevention system.Beginning from the basic theory and related literature study of the financial innovation and its risk management, this article systematically analyzes the connotation of commercial banks’financial product innovation, and the motives of financial innovation. Based on the relevant theoretical basis, we have created a new repeated game model of financial product innovation which has spillover effects, different competitive strategies, and risk constraint. Determining the Nash equilibrium of the model and discuss the stability conditions of the equilibrium point, we analyze the financial product innovation’s complexity from the perspective of chaotic dynamics, make repeated game model recover from a chaotic state to a new state of the Nash equilibrium chaos through linear chaotic control method; and analyze the risks faced by financial product innovation. The article discusses chain transmission mechanism of financial product innovation on the basis of the analysis of risk characteristics of financial product innovation; proposes a new model of internal risk management and external supervision of Chinese commercial bank financial product innovation on the basis of learning the successful experience of financial product innovation risk management; identifies the key factors influencing risk management level of financial product innovation on the basis of relevant theoretical foundation. Based on these, above six latent variables’theoretical models are established, including financial product innovation governance, risk management culture, organizational structure and systems, human resources, financial product innovation information, and financial risk management. Combined with relevant theoretical and empirical findings, we put forward the underlying assumptions and scale design, conduce the questionnaire surveys, refine the scale options through the confirmatory factor analysis of sample data, test the reliability and validity of the relevant scale, use structural equation to model theoretical model fitting, hypothesis testing and path analysis of risk management’s effects; finally propose corresponding countermeasures and suggestions on how to improve the risk management level of commercial banks’ product innovation.Research shows that the competitive strategy of commercial bank’s financial innovation product and the spillover effects of financial innovation have a significant influence on market competition complexity. Using linear feedback control method can make the repeated game model recover from chaos state to a new Nash equilibrium state, which promotes the commercial banks to guard against business risks and market risk effectively. In order to prevent the innovation risk of commercial banks’s financial product, there must be an independent risk organizational structure, appropriate risk management processes and perfect risk management support mechanisms; functional regulatory approach should be taken to supervise commercial banks’financial products innovation. Supervision of financial products innovation, commercial banks’ risk management culture, risk management strategies, financial product innovation internal control system, risk management organizational structure, human resources management and financial product innovation and the financial product information are the key factors affecting innovation risk management. Supervision of financial product innovation and risk management culture have much more indirect effects on increasing the level of innovation risk management to commercial banks’ financial product. Among these factors, risk management culture is mainly managed and transmitted through the following three paths:organizational structure and information system, human resources, financial product innovation. It is necessary to scientifically establish countermeasures for innovation risk management of commercial banks’ financial product, and to effectively improve the innovation risk management level of financial product.The innovation of this paper can be summarized as the following respects:Firstly, this paper creatively links spillover effect in market to different competitive strategies, establishes a new repeated game model, proposes new function of spillover effect which is more consistent with the innovation practice of commercial banks’ financial product. After the full consideration of potential risk which the spillover effect of the commercial banks’s financial product innovation may lead to, this article comprehensively discusses commercial banks’enterprises chaotic dynamical behavior in the case of market having spillover effect and different competitive strategies, and carry out the chaotic dynamics analysis and chaos control to the established spillovers and different competitive strategies of financial product innovation’s repeated game model.Secondly, this paper builds a new model of financial product’s innovation risk management, collects various factors affecting financial product innovation, and explores the mechanism of the key influencing factors to the innovation management level of commercial banks’financial product. It also develops the influence factors scale of commercial banks’financial product innovation risk management, and uses the testing, confirmatory factor analysis of reliability and validity to verify the scale’s reliability and validity; builds the transmission relationship’s structural equation model between the influence factors of commercial banks financial products’ innovation risk management and the level of financial products’ innovation risk management, tests the overall adaptation degree and the basic adaptation degree of the structural equation model, and evaluate and revise the model; proposes transmission relationship’s research hypothesis between the influence factors of commercial banks financial products’innovation risk management and the level of financial products’ innovation risk management, tests the significance and analyze the acting path, and then gets the results to support the research hypothesis.Thirdly, this paper constructs the model of financial products’innovation risk management with Chinese characteristics:builds the risk management model based on internal control from three aspects of the organizational structure, risk management processes and the corresponding supporting mechanisms; establishes functional regulatory model with the People’s Bank of China being the umbrella supervisor, which is different from the current institutional regulation mode.