Exploration On A New Way To Credit Risk Management Of Commercial Banks In China

The existence of credit risk in commercial banks is inevitable as a result of asymmetry information and incomplete contract. The traditional "issue to holder" management model only carries out internal dispersion and control of risks in the commercial banks. Due to the deficiency of effective market-oriented distribution channels, the credit risk of commercial banks in China is highly concentrated which is incompatible with financial stability and international competitiveness. Credit default swap is one kind of credit derivatives which has the largest scale, the most mature development and the highest level of standardization in the present international market. Based on the fundamental theories in modern finance and economics, this paper explores a new way to credit risk management of commercial banks on the possibility of credit default swap operations from a new perspective. On the basis of demonstrating the necessity of credit default swap operations in China, this paper makes design and application arrangement for the introduction and development of this business in China. The paper tries to seek a risk-control way adjusted to Chinese circumstance through the analysis on pricing model, contract design, product applications as well as implementation steps. Furthermore, the paper makes deeper explorations by international comparison, points out the favorable conditions, obstacles and potential risks in the process of practicing credit default swap operations, and finally proposes suggestions on credit risk management of commercial banks in China.