The Interest Rate Liberalization And Interest Rate Risk Management Of Commercial Bank

The theory of interest rate liberalization accelerates the economies of developing nations to a certain extent, but instability and risk of economy and finance also emerge during the process. Especially for commercial bank, the rapid increase of interest rate risk enhances the possibility of losing and bankruptcy. But the theory of interest rate liberalization can't explain these phenomena and resolve these problems, so developing nations must employ the theory of asset and liability management especially the theory of interest rate risk management to offset the shortcoming of interest rate liberalization. Through analyzing cases, we can find that the commercial banks in developing nations suffered from a lot of losing in earnings during the process of interest rate liberalization, but the commercial banks in developed countries exhibited great power of risk-resistance, which could be owed to interest rate risk management that they have employed. In our country, commercial banks are also faced with interest rate risk, so we should make use of effective technologies and instruments to manage the interest rate risk in banking.The interest rate risk management technologies in commercial bank include interest rate sensitivity gap management duration gap management convexity gap management and so on. The interest rate sensitivity gap management belongs to the current earnings approach, which emphasize interest rate risk having an effect on earnings from interest, so it is a short-term interest rate risk management approach. The duration gap management and the convexity gap management all belong to the market value approach, which emphasize that interest rate risk have an effect on market value of commercial bank, so they are long-term interest rate risk management technologies. Commercial bank should employ the two approaches at the same time to management short-term and long-term interest rate risk. Sometimes it is difficult to directly adjust balance sheet for interest rate risk management, so commercial bankmust employ some instruments which is beyond the balance sheet to hedge interestrate risk in balance sheet. These instruments include forward-rate agreement interest rate futures interest rate swap interest rate option mortagages-backed securities and so on. The demonstration in this thesis indicates that our commercial banks could employ interest rate sensitivity gap and duration gap to manage interest rate risk in balance sheet. And our commercial banks also should study the possibility of employing interest rate futures and mortagages-backed securities to hedge interest rate risk in balance sheet.The VaR model is the advanced approach up to the minute to manage interest rate risk in commercial bank, which could measure and manage the capital at interest rate risk, so it is the last line of defence for interest rate risk. Firstly, our commercial bank should try to employ VaR to measure and manage the interest rate risk in the trade account, and then gradually to manage the interest rate risk in the banking account.The article includes four chapters.The first chapter firstly analyses the theory of interest rate liberalization and the limitation of this theory, indicates that the theory of interest rate risk management is the indispensable complementarity for the theory of interest rate liberalization. Secondly the first chapter analyses the interest rate risk in commercial bank during interest rate liberalization, and indicates that effective interest rate risk management could decrease the interest rate risk exposures, so our commercial banks should employ technologies and instruments to manage interest rate risk.The second chapter is a theoretical analysis for the management of interest rate risk in commercial bank, including the history of interest rate risk managements the basic theory of interest rate risk management the contents of interest rate risk management and the objects of interest rate risk management.The third chapter includes a demonstration about interest rate risk management in o...