The Study Of Interest Rate Risk Management In Our Commercial Banks Under The Interest Rate Marketization

Under the theories of Mckinnon and Shaw's"Financial Repression"and"Financial deepen", most of developing countries have phenomenon of Financial Repression. It went against economical long-term development. They claimed that unlash the control of interest rate which should be decided by market. According to the theory, many countries unlashed the control of interest rate and speeded up the economical development.China began to interest rate marketization from 1992. Through the efforts of more than ten years, People's Bank unlashed 119 kinds of interest rate and still controlled 29 kinds. People's Bank enlarged the motion range of interest rate and adjusted interest rate system which began to criterion. Now the step of interest rate marketization is more and more quick and it will come true sooner or later.But because of our country's policy to control interest rate for long term, commercial banks had no power to decide interest rate which was decided by People's Bank. So they lacked the experiences of interest rate risk management. If we still ignore interest rate risk after interest rate marketization, it will bring lost to commercial banks. The paper mainly discusses interest rate risks after interest rate marketization in China and introduces the methods of interest rate measurement and management. It gives many suggestions to commercial banks in the end, so it has important realistic meaning.This paper is totally divided into six parts: The fist part is an introduction, which introduce the meaning of choosing the subject, the research methods and logic structure. It also introduces those books and papers which discuss interest rate risk and interest rate marketization at home and abroad.The second part introduces the conditions of controlling interest rate and background of interest rate marketization in China. Our country began interest rate marketization from 1992. It is more than ten years now. We choose to release the interest rate gradually. It releases the interest rate in Money Market and Bond Market firstly, then releases the interest rate in Saving and Loaning Market. It will build up the interest rate formation mechanism which is decided by supply and demand in market and People's Bank only adjusts and guides interest rate.The third part dissertates the relationships of interest rate marketization and interest rate risk. After interest rate marketization, the interest rate will fluctuate continually and hard to forecast which prick up interest rate risk. Intensifying the management of interest rate risk helps to accommodate interest rate marketization for commercial banks. According to Basel Committee's"Principles for the Management of Interest Rate Risk", interest rate risks have four kinds which include Repricing Risk, Yield Curve Risk, Basis Risk and Embedded Option Risk. Because commercial banks in our country have no power to decide interest rate for a long time, they thought little of interest rate risk and had no experiences to manage interest rate risk. It will strengthen interest rate risk after interest rate marketization. Commercial banks should study interest rate risk managerial methods from western commercial banks. Only thus, commercial banks can reply interest rate marketization's impact and keep banks management stable.The four part analyses how to measure and manage interest rate risk in western commercial banks. The measurable methods include Interest Rate Sensitive Gap analysis, Duration Gap analysis, Scene analysis and Var model. The author introduces these methods'principle and compares these methods'limit. The managerial methods include Assets and Liabilities Management and Derivative Tools Management. Derivative tools include Forward Rate Agreement, Interest Rate Future, Interest Rate Swap and Interest Rate Option. The author introduces how these tools work to prevent interest rate risk in the end.The five part analyses the condition of interest rate risk management in China, problems and suggestions for commercial banks. The Repricing Risk and Embedded Option Risk are the main interest rate risks in China. From 1996 to 2004, the interest rate in China was falling and commercial banks accommodated this situation. But from 2004, the interest rate in China was rising. If commercial banks don't pay attention to this trend, it will bring lost to banks. Interest rate marketization strengthens Embedded Option Risk. After interest rate rise, saving customers will draw saving and make higher interest rate to save. After interest rate fall, loaning customers will pay back loan ahead of schedule and make lower interest rate to loan. It should be paid attention. Then the author analyses problems of interest rate risk management in Chinese commercial banks and gives relevant suggestions.The six part is conclusion. Our country should pay more attention to interest rate risk after interest rate marketization, study the measurable and managerial methods of interest rate risk in western commercial banks, build interest rate risk forecast and management system and practice interest rate risk managerial methods which are appropriate for our country.