Research On The Interest Rate Risk Management Of China's Commercial Banks

Since the early 1970s, many countries have been initiating a wave of financial liberalization, one of the important contents in this wave is the market-based interest rate reform. The reform continuing for many years in those countries improved the efficiency of fund allocation on financial market and made diverse interest rate circumstances, which also brought a lots of interest rate risk to the main reform participator- commercial banks. Considering the risk, the theorist and practitioner of western commercial banks have made plenty of research work and devised many risk managerial models as well as products in order to avoid the loss in earnings or economic value of commercial banks. Nowadays, the management of interest rate risk of western commercial banks is the important task in daily managements .In 1996, China essentially initiated the market-based interest rate reform, which is an important procedure in China's financial system reform. In recent years, the market-based interest rate reform has been steadily advancing. During this process, China's commercial banks have more self- determination rights of interest rate, whereas the matter of interest rate risk emerged from bank business. Unable to be turned back for the process of market-based interest rate reform in our country, it is certain that the interest rate risk of China's commercial banks will be deepen gradually. Therefore, researching on the issue of interest rate risk management of China's commercial banks has importantly academic significance and instructive value in respect of heightening the earnings and managerial level of our country's commercial banks, which is also the purpose of writing this paper.This paper combines empirical analysis with normative analysis ,using historical and logic methods, and gradually deepens its contents during the process of discussion. Firstly, the article outlines the interest rate risk management and discusses the principles, cases and limitations of those main methods used by western commercial banks to manage interest rate risk. Subsequently, this paper makes researches into the operating situation, interest rate risk of China's commercial banks as well as its impacting extent to banks, and points out the obstacles to interest rate risk management for China's commercial banks at present. At the end of this paper, general proposals for advancing the management of interest rate risk are put forward from the angle of improving internal and external factors of China's commercial banks.This paper consists of five parts. In the part of introduction, the reasons for3selecting this topic are presented, the following is summarization of related literature home and abroad, and methods of the study and track of thought are introduced at the end of introduction.The second part consisting of three sections is the outline of interest rate risk management. This part makes provision for the following parts. Section one defines the concept of interest rate risk on the basis of analyzing related concepts, Section two describe primary forms of interest rate risk. In section three, the contents of interest rate risk management is analyzed.The third part analyzes the methods of interest rate risk management used by commercial banks abroad and its enlightenment on China's commercial banks. In the first section, the development trail of interest rate risk management about western commercial banks is analyzed. In section two, four typical methods that had been using to manage interest rate risk, such as the technique of rate-sensitive gap management, the method of Duration management, dynamic simulation approach and the method of Value-at-Risk are respectively introduced and analyzed, including their principles, applied situations and limitations. Moreover, the reason why these methods had been using in succession is discussed. Section three introduces in detail the applications of financial derivative instruments and also makes comparison in function between them. The final section discusses some enlightenments to Chi...