Interest Rate Marketization And Interest Rate Risk Management Of Commercial Bank

As one of the most important variables in the financial market, interest rate plays more and more important role in the routine life. With the development of China's market economy, the positive influence of interest rate regulation on economic growth is decreasing. On the contrary, improving the price system in the financial market is one of the key issues in China's economic development; reform of the interest rate marketization aims to modify the previous price determination system to determine the interest rate by the supply and need in the capita market. With the deepening of interest rate marketization in China, the interest rate risks for commercial banks gradually appear. On one hand, reform of the interest rate marketization is beneficial to improve the pricing rights and operation environment for commercial banks and. On the other hand, frequent fluctuation of the interest rate due to the marketization will intensify the interest rate risks of commercial banks, which will challenge the interest rate risk management competence of the commercial banks and supervision institutions.As one of the main participants in China's financial market, commercial banks play an important part in allocating the credit resources. In the process of interest rate marketization, interest rate risks will become one of the main market risks for the commercial banks. What's more, one of the main resources for interest rate risk lies in the credit business. Hence improving the interest rate risk management competence is not only helpful to decrease the market risks for the commercial banks and maintain the financial stability, but also beneficial to improve the allocation efficiency of credit resources and accelerate the economic growth in China. This dissertation attempts to analyze the current circumstances and limitations of interest rate risk management of China's commercial banks in the background of interest rate marketization. In addition, this dissertation aims to analyze the countermeasures to improve the interest rate risk management competence of China's commercial banks. Based on the theories of interest rate risk management of commercial banks, this dissertation chooses one of the city commercial bank as the research sample and adopts the gap analysis, period model, VAR model and pressure test to measure the interest rate risks. What's more, based on the current circumstances and limitations of China's commercial banks, this dissertation puts forward several recommendations to improve the interest rate risk management competence of the commercial banks.This dissertation consists of three main parts. The first part, including Chapter1and Chapter2, is the theoretical foundation; this part aims to review the relative literatures and theories about the interest rate marketization and risk management, which will make the theoretical pavement for the further analysis. What's more, literature review about the interest rate risk management will be helpful to identify and measure the interest rate risks of China's commercial banks. The second part is composed of Chapter3, Chapter4and Chapter5, is the main body for this dissertation. This part will comprehensively analyze the process of China's interest rate marketization and its influence; discuss the current circumstances and limitations of interest rate risk management of China's commercial banks, conduct the comparative analysis about the different supervision model and put forward the recommendations. The final part is a brief summary of this dissertation, which aims to summarize the main conclusions and point out the future research prospect.Chapter1conducts the analysis about the research backgrounds and implications, reviews the relevant literatures and puts forward four research questions.(1) What are the reform process and future trend of China's interest rate marketization? What's the influence of interest rate marketization on China's commercial banks?(2) What are the interest rate risks China's commercial banks will confront in the background of interest rate marketization?(3) What are the current circumstances, limitations and improvement recommendations for the interest rate risk management of China's commercial banks?(4) What are the current circumstances and recommendations for the interest rate risk supervision for China's commercial banks?What's more, the comparative analysis, static and dynamic research, subjective and empirical analysis, inductive and deductive study will be adopted to discuss how to improve the interest rate risk management of China's commercial banks.Chapter2aims to comprehensively analyze the relative theories of interest rate marketization and interest rate risk management of commercial banks. Interest rate determination is one of the basic theories for interest rate marketization, which is helpful to understand the reform process and future trend of China's interest rate marketization. In addition, interest rate risk management theory is useful to identify; measure and manage the interest rate risks of commercial banks. The interest rate gap analysis, period model, VAR model and pressure test are four main methods to measure the interest rate risks. In line with the data availability principle and the supervision regulation, this dissertation will choose the interest rate gap analysis, period model and pressure test to measure the interest rate risks of commercial banks.Chapter3mainly discusses the reform process of interest rate marketization and its influence on commercial banks in China. In line with the analysis above, China will accelerate the stepwise reform mode in the condition of stable economic environment, advanced financial market and complete supervision system; the interest rate marketization will significantly affect the operation environment, business, investment and financing habits, pricing competence and risk management ability of China's commercial banks.Chapter4mainly focuses on the interest rate risks of China's commercial banks. Based on discussion about the interest rate risk management, it can be concluded that the repricing risk, yield curve risk, basis risk and embedded option risk are the main interest rate risks of China's commercial banks. In addition, the empirical results indicate that the interest rate sensitivity gap of sample city commercial bank is relatively large; the duration model shows that the decreasing interest rate will be helpful to improve the market value of sample bank. Besides, the stress test proposes that the interest rate risks of bank accounts are small; while those of trade accounts are large.Chapter5mainly discusses the measures to complete the internal management system of interest rate risks in China's commercial banks. The main stages of interest rate risk management for commercial banks include the risk identity, risk assessment, method selection, implementation and feedback. In addition, the SWOT analysis shows that the improving operation performance, single business mode and improving risk management competence are the internal strengths of China's commercial banks to implement the interest rate risk management; the weak risk management awareness, lacking of motivation to conduct the interest rate risk management, retentively passive status, incomplete risk management mechanism are the internal weaknesses of China's commercial banks. The stable economic environment, the government support, financial reform and technologic innovation are the external opportunities; while the external weaknesses lie in the increasing linkage in the global financial system. Hence China's commercial banks can adopt the following measures to complete the internal management system of interest rate risks (improving the interest rate management awareness, cultivating the special talents, setting up the interest rate risk management department, enlarging the intermediary business, establishing the strict internal control system, using the advanced technologies, accelerating the financial innovation and completing the pricing mechanism).Chapter6aims to analyze how to complete the external management system of interest rate risks in China's commercial banks. This chapter makes use of the comparative analysis to discuss the advantages and disadvantages of the two kinds of supervision modes. In addition, it can be concluded that the following measures can be adopted to complete the external management system (establishing the special interest rate supervision department, formulating the corresponding supervision regulations and laws, developing the risk supervision model and improving the supervision independence).Chapter7is a summary of this dissertation. Based on the analysis above, this chapter summarizes several conclusions and point out the research prospect.