Research On Economic Capital Management Of Commercial Bank In China

Capital of banking is the last barrier against the risks, also the key to maintain public confidence. In the 1980s, international banking recognized the importance of capital in risk prevention, introduced the Basel Accord requiring banks 8％minimum capital adequacy ratio. In June 2004 New Basel Capital Accord was promulgated, and international banking takes a more flexible approach on risk measurement, so the level of banking capital can reflect risks more realistically. Theoretical study on how to manage the capital of international commercial bank has never ceased. With the continuous development of the banking capital management theory, the concept of economic capital has been drawing an increasing attention. The appearance and application of economic capital has been accelerating the unification of risk management, capital management and value management of commercial bank. Economic capital management, in some degree, has become the base and the core of international commercial banks management, and must inevitably be followed by commercial banks in China.The core of economic capital management is economic capital measurement and capital allocation. Economic capital measurement unifies risk management and capital management of bank, capital allocation unifies capital management and value management of bank.Economic capital measurement equals risk measurement in essence. Assets fluctuate method and income fluctuate method are main measurement method of economic capital measurement. Assets fluctuate method regards risks as fluctuation of assets value and measure risks from down to up. This method need a lot of data and has a lot of measurement model to measurement all sorts of risks. Income fluctuate method regards risks as fluctuation of income and bases on historic data. Income fluctuate method is simple and need a little of data.There are many means to allocate economic capital according operation cell. This text give four methods of capital allocation and make suggestion that absolute risk contribution method should be used to allocate economic capital. In addition, banks should optimize capital allocation according to RAROC and realize maximize value of banks.According to the practice of economic capital management in Chinese commercial bank, the text gives three piece of advice: First, banks in China should understand economic capital correctly and form an idea of economic capital management; second, income fluctuate method should be adopted in China, as well as risk measurement technique should be studied and applied rapidly; last but not least, total amount of economic capital should be programmed scientifically and banks should allocate economic capital efficiently.