The Research On China's Commercial Banks' Performance Evaluation Based On The Concept Of Economic Capital

One of the concept of modern commercial banks is that commercial banks look likely operate on the currency, but risks in fact. The Bank is a special enterprise which bears risks, translates risks into its products and services. Although the risk is a threat on the sound operation of commercial banks, the banks can not do without risks because the only way to get benefits for banks actually proceeds to take risks. Therefore, it is necessary for the commercial banks to have sufficient capital funds to ensure the survival and long-term value of value-added. Economic capital in the banking is an important risk management tool, also known as venture capital. In short, the economic capital is the minimum capital needs which is calculated according to the risks. It is used to measure the unexpected loss and it is the last line of defense to prevent the risk of bank failures.Because of the special nature of banks operating risks, it has been decided that risk factors must be taken into the performance evaluation method. But China's traditional financial evaluation method can not reflect the risk factors, and because of the distortion of accounting information, the managers could be lead to a wrong direction. In recent years, China's commercial banks have continued to explore boldly. The performance evaluation systems focusing on efficiency at the core have been established preliminary which achieved positive role. However, because of the limitations of understanding and the impact of the existing structure, compared with the advanced international banks, there is still a gap: (1)The widespread multiple indicators have been executed by most commercial banks in performance evaluation and the effectiveness of the core indicators could not play an effective role in guiding; (2)Because of the insufficient understanding of the value of economic capital management, and one-sided pursuit of the business expansion, the banking system has accumulated a lot of risk and the quality of bank assets has been impacted seriously. Based on this, it is very necessary and urgent for China's commercial banks to establish a new performance evaluation system under the economic capital constraints.Therefore, in this paper, the research has been unfolded from the following aspects: The review of conventional performance evaluation; the elaborate on the necessity of economic capital pulled into performance evaluations as an important indicator; the research on performance evaluation methods based on the concept of economic capital, as well as the research on the application of EVA evaluation system based on the concept of economic capital in China.