The Model Constructed For The Risk Management System Of Commercial Banks

Risk management ability is the core competitive ability of commercial banks.However, it is also the weakness of China commercial banks. This paper tried toprovide a model for commercial banks to construct a risk management system anddiscuss the significance of the model to banking regulation.The paper started with risk management theory of commercial banks. Then itconstructed a 3-dimension model. It analyzed the present situation of credit riskmanagement of a subsidiary bank by using the model. Applying the model to theconstruction of credit risk management system of commercial banks, it pointed outthe specialty of the design of the risk management system based on the model. At lastit investigated how to apply the model to banking regulation.Referring to the 3-dimension structure mode of system engineering, itconstructed the risk management system from the risk, procedure and instrumentdimension. The system consisted of organization structure, decision making procedure,policy and technology. It included every business level and every risk type with riskmanagement penetrating the whole process of commercial bank operation, involvingall the operation units charged with all the risks in the united system, preparing thefoundation of the enterprise-wide risk management.It showed the efficiency of the model when applied to analyze the presentsituation. With the principle of dialectic inside and outside factor relationship, itcompared the inside risk management with outside regulation, indicating that theapplication of the model to banking regulation manifested that outside regulation andinside risk management complemented and promote each other. With the principle ofstatic and dynamic combination, the paper suggested that besides theobjective-oriented regulation there should be procedure-oriented regulation.For the application to the banking regulation, the model can be the diagnosis toolfor banking supervision authority to understand and score the commercial banks' riskmanagement. It can also be used to bring forward directions and regulatoryrequirements achieving the procedure-oriented instruction and regulation. Theapplication of the model to banking regulation accorded with the risk regulationrequirements.