A Study On Application Of Economic Capital Management In China Commercial Banking

The capital management is closely related to the risk management in modern commercial banking. Capital represents the ability for banks to resist risk, restricts the expanding speed and scale of banks, and determines the capacity for sustainable development. As an advanced capital management way, economic capital management realizes the integration of risk and return and to some extent, it is becoming the mainstream of international banking management, and it is sure to be the direction of China commercial banking. The core of economic capital management is capital measurement, performance measurement and capital allocation based on RAROC. In other words, its basic role is measurement of capital adequacy, performance measurement based on RAROC, effective capital allocation. The measurement of capital adequacy imposes the bound to bank management from amount, while the performance measurement and capital allocation based on RAROC imposes the bound to bank management from quality.There are six chapters in the dissertation. Chapter one, introduces the reason for choosing the topic, and the related researches on capital management on abroad and domestic. Also it points the research methods and the innovations and shortages of the dissertation. Chapter two, first introduces the related concepts about economic capital, and then introduces the methods on how to measure economic capital, to make preparations for the measurement of economic capital. Chapter three focuses on the performance measurement and capital allocation based on RAROC, and explains its usage by using an example. Chapter four introduces the new economic allocation way based on risk contribution theory. By comparing the capital allocation based on separate risk and the capital allocation based on risk contribution, we conclude that the latter is better. Chapter five ,it is the application of economic capital management, by using the practice of Agricultural Bank of China, it describes how to use economic capital management to analyze the credit risk for banks, and adjusts the business and area accordingly. Chapter six, first introduces the practice on economic capital management in China commercial banking, and points the shortages in the practice, at last provides the countermeasures for perfecting economic capital management.