A Study On Function Reengineering Of Commercial Banks Based On The Comprehensive Risk Management

How commercial banks seek for further development in the conflict between theintrinsic financial innovation demand and the rigorous risk-based regulation? How dothey adjust their layout under the external pressure of financial marketization reform andeconomic development at an intermediate speed? How do they ensure the goal ofshareholder value maximization in face of fierce competition with the same trade and thenetwork finance? Around these questions, this thesis conducts an in-depth analysis ofcommercial banks’demand of reform in operational risk which generates during dealingwith complex and changeable external environment and increasingly diversified customerrequirements from the perspective of total risk management’s function reconstruction.For more than30years since the reform and opening-up policy, China has maderemarkable achievements in economic development. As finance always acts as a role inserving economy, it also undergoes the expansion from small to big and the constantsoundness and mightiness. According to The Zuo Commentary, it is better to makepreparation for danger in times of safety because preparedness averts perils. Chinesecommercial banks seems to be high according to the convincing report forms butpossesses strong externalities in essence, depending on the interest rate control,inadequate competition of the finance industry and relative weak marketization degreeinstead of the endogenous innovation and technology premium. For this reason, Chinesecommercial banks in some way are still restricted to fundamental functions of creditintermediary, mainly providing traditional banking business such as taking deposits, loantransaction and settlement etc., but possessing relatively weak function of providingfinancial service. Although some small and medium joint-stock commercial banks rapidlyrise by virtue of modern administrative strategy and flexible guideline for managementand large-scale commercial banks explore new growth points during their steadydevelopment, these large-scale commercial banks, joint-stock banks and municipalcommercial banks tend to be convergent in terms of functional localization and businessstructure, forming a pattern of launching horizontal competition in retail banks and assetsmanagement and other business area since the credit operations.The reconstruction of commercial banks’ function studied by this thesis refers tocarrying out systematic reshaping of the commercial banks’function by taking financialresources allocation as the core. Function reconstruction originates in the structure changeand the business structure of commercial banks keeps changing from one kind of equilibrium state to another kind of equilibrium state. Actually, this changing process isthe process of function reconstruction and the equilibrium state is the optimaldiversification degree of business structure of commercial banks. Abstractly, functionreconstruction is to retain and develop the positive function of the function system ofcommercial banks and improve the negative function with negative externality;specifically, it applies the concept of risk management to every function, every item ofbusiness and every level of management. Just as every reform, commercial banks’function reconstruction will not completely overthrow the original function ofcommercial banks at certain time point in form but optimize and create the internalstructure of function production progressively. In this sense, commercial banks’functionreconstruction possesses the feature of progression. With respect to banks, the core offunction reconstruction lies in applying risk awareness and risk control to every link ofbusiness and redesign the product according to the change of target marketingenvironment. However, the foreign advanced banks conduct more in-depth functionreconstruction in the aspect of hierarchy and connotation while modern commercial banksgradually tend to transfer their business focus to non-credit financial service which takesrisk as the resource for operation, costs low and yields high. Therefore, Chinesecommercial banks should take the initiative to adjust operating strategy, yield structureand asset structure, open up a new market, create non-credit financial product andbusiness, gradually realize the function reconstruction of banks and promote the corecompetence. It can be said that commercial banks’function reconstruction develops newprofit space and meanwhile brings new challenge to traditional risk management andsince function reconstruction and risk management involve in a relation of mutualpromotion and weakening, how to realize the scientific balance of this contradictoryrelation and promote the business performance of commercial banks constitutes the bigbask of Chinese commercial banks.This thesis attempts to summarize banks’function reconstruction from such aspectsas its connotation, theoretical origin, core content and strategy and carries out systematicanalysis of imperfect bank function reconstruction theory. This thesis first reviews thetheoretical mechanism from risk management and function reconstruction of commercialbanks to provide powerful support for the subsequent discussion; then, it analyzes thecorresponding relation between the risk and the function, establishes the diversificationindex of commercial banks’ function through adopting the essential data of over30thousand international commercial banks and the tool of diversification analysis, and discovers that commercial banks’diversification degree has obvious influence on the riskadjustment performance based on the empirical study of establishing panel model; next,it explores the difference between commercial banks of China and internationally activebanks in terms of diversification and risk management by taking commercial banks fromAmerica, China and Japan etc. for carrying out comparative study and puts forwards theenlightenment of foreign commercial banks’ function evolution on commercial banks’function reconstruction in China; further, it analyzes the historical development andcurrent situation of commercial banks’function in China for more than30years since thereform and opening-up policy; finally, it proposes the general thought of and approach toChinese commercial banks’ function reconstruction as follows: the first is about thereconstruction of banks’basic function which is embodied in the reconstruction of creditintermediary and credit creation, and with respect to business, assets business and liabilitybusiness should turn to the trading means of financial instruments with marketability; thesecond is the optimization of banks’service function, taking new information technologyas the axis and changing from focusing on assets and liabilities business in the past topaying equal attention to credit business and the creation of non-credit financial service;the third is the reconstruction of banks’ core function, as the leading actor of financialsystem, the bank assumes the function of resource allocation of finance to a great degreewhile the most important for the full play of resource allocation function lies in the basisof total risk management. Through study, this thesis concludes that commercial banks’function reconstruction can exert remarkably positive effect on the promotion of banks’risk adjustment performance and the control over bank’s overall risk as well.Consequently, it is necessary and urgent to conduct the function reconstruction based onoverall risk management and the business structure optimization for Chinese commercialbanks from the aspects of service function and core function.This thesis makes a general surveyof international financial industry’s developmenthistory and proposes that it is the development tendency of international banking to carryout function reconstruction based on overall risk management through the comparison ofdomestic and overseas financial industry’s development situation. Thus, conductinganalysis of Chinese financial industry under the background of overall risk managementis consistent with the historical development trend and possesses certain perspectiveness;meanwhile, risk adjustment performance, overall risk and diversification index areadopted to conduct a comprehensive analysis for banks, making the study morecomprehensive and avoiding the limitations of previous evaluation on banks’ performance from only one kind of risk; besides, it proposes that diversification has anonlinearityeffect onbanks’riskandperformance, breakingthrough availableliterature’ssole consideration in a linear way.