The Interest Risk Management Of The Domestic Commercial Banks Under The Frame Of The Basel Committee

Interest rate risk is the major risk that the commercial banks face when China is operating its interest reform. The Basel Committee has release the《Principal of management and supervision of interest risk》which suggests to built a general management frame to control interest risk ,including Board and senior management oversight of interest rate risk, Adequate risk management policies procedures ,Risk measurement, monitoring, and control functions and Internal controls. This essay focus on the quantity technic to measure ,monitoring and control of the interest risk .Firstly,the essay using a cost-profit method to discuss the current interest evaluation system in China should be the Gap analysis coupled with Duration analysis .When introducing the Gap analysis, the essay using the example of HKMA to show how to make a repricing schedule and emphasis the way of deciding the time band ,how to calculate the asset and liabilities and how to deal with those derivatives .When discuss about the duration analysis ,MinSheng Bank's 2005 annual report gave us a good example to analysis its interest risk on its bonds it's holding .When there is a effective way of evaluating the interest risk ,there are two kinds of way to control it ,one way is to change its asset or liabilities to control the risk ,such as the Gap model and Duration model ,there are also further discussions on the duration-convexity gap and embedded options. Another way to control the interest risk is to use the derivatives without changing the balance sheet. We discussed about the pricing and using of all those usual derivatives. In the end, according to what we have discussed ,the essay gives some suggestions to our commercial banks to control its interest risk effectively and regularly.