The Application Of Economic Capital Management In Commercial Bank

With the fast development of the commercial banking industry in China over the recent two decades, the industry has appeared to experience the units'fast increase and the scale's sudden expansion. At the same time, it has also suffered from the sharp problems exposed on the operation and management, such as large amount of bad debt, serious absence of capital, frequency of financial scandal, and the low efficiency of economy. Especially on the capital management, as there is no sufficient understanding on that the capital should cover the risk and limit the over-expansion of the banks, the operation behaviors and views of unilaterally pursuing scale expansion with the regardless of capital quality and risk reduction still exist. After China's entry into the WTO, the Chinese banking industry has confronted the huge challenges from the open-up to the world and the foreign commercial banks'entry. Therefore, it is inevitable that the Chinese commercial banks should learn to adapt to the new environment, take new challenges and maintain self-competence. This paper starts with the analysis of the current situation on the capital management of the Chinese commercial banking, while pointing out the existent weaknesses in the banking capital management and its negative influence on the competence. Then the paper introduces into the theory of economic capital management from the classification of the bank risks, to describe the metric-methods of risk capital of banking credit, market and operation to analyze the restriction of the economic capital on the quality and quantity of bank operation to come up with the principles of the budget management and resource allocation on the bank economic capital and to emphasize the necessity and importance of economic capital management in the banking operation. On this base, the paper raises the frame and content for commercial banks to establish economic capital management, and the requirements on the bank hierarchy. Followed by the way of case study, the paper discusses the change on the operating patterns and growth methods before and after the branches of the commercial banks implementing the economic capital management, and proposes the solutions to the possible problems in the application procedure, which becomes the valuable reference for the commercial banks to effectively manage economic capital.The paper consists of six parts as follows1. Introduction. State the research motives, intentions, methods and frame of this paper.2. Analysis of the current status of the capital management of the commercial bank. Briefly introduce the current status of capital management from two aspects of resources disposal and performance management. Analyze the defects and the negative impacts to pave the way for the statement of the necessity of economic capital management.3. The content, measurement and function of the economic capital management of the bank. Introduce the content and measurement of the economic capital and the restriction principle to the operation from two aspects of quantity and quality. Conclude the budget management and disposal principle of the economic capital. Further state the necessity and function of the economic capital management.4. The frame construction of the economic capital management of the commercial bank. State the frame construction of the economic capital management of the commercial bank, the capital disposal method and the core assess guideline. Make a request to different units of the bank under the capital management.5. The experimental research of one commercial bank branch to conduct economic capital management. Explore the way in which branch banks adjust themselves to adapt to the economic capital management. Explore the development thoughts of the changes on the operational modes and increase methods.6. Conclusion and suggestions. Point out that in order to make the economic capital management to play its leading part in the operational management of commercial banks, the banking should actively practice, continuously explore and set the guideline to make the effort on how to update the operational idea , conduct the risk measurement ,establish the management mechanism and enhance the evaluation and stimulus.