Research On Management Of Chinese Commercial Banks's Interest Rate Risk On Condition Of The Tightening Monetary Policy

In the second half of 2003, People's Bank of China raised the reserve requirement ratio. It indicated that China had entered a period of tightening monetary policy. This policy had not ended until the second half of 2008. During this period, People's Bank of China frequently raised the reserve requirement ratio and central bank base interest rate, which may result in that the cost of funds of commercial banks was raised. In China, the promotion of market-oriented interest rate has intensified competition among the commercial banks, to a certain extent, which reduce their income. How much interest rate risk they faced and how to control it is an urgent issue which need to be addressed.In view of this, this thesis analyzes the factors that influence interest rates from the western theories of interest rate decision at first. And then it analyzes impact of monetary policy on interest rates from the transmission mechanism of monetary policy. With the the domestic financial situation, it analyzes the relationship between moneytary policy and interest rates, as well as the role of interest rates in monetary policy. Based on reviewing the history p of monetary policy in China since the reform and opening-up, it build the ARMA model of changes in interest rates with the annual series data from 1978 to 2008. This model can illustrate the inherent necessity and the possibility of repetition in the future about the tightening moneytary policy. Study shows that: in the past 30 years, the domestic base interest rate is positive correlation with GDP and CPI.But it related to M1 in negative correlation. Central bank base interest rate is mainly affected by the macroeconomic enviroment and the money supply situation. As part of monetary policy, the objective of central bank base interest rate is to maintain the stability of the value of the currency and thereby promote economic growth. The promotion of the economic growth has the priority in the maintenance of the value of the currencprice stability. Hence, if the economy is overheating, the tightening monetary policy will come up again.At second, this thesis take a comparative analysis of the main methods to measure interest rate risk, such as the Interest Rate Sensitivity Gap,the Duration Model and the Convexity Model in the West. On the basis of that, taking Shenzhen Development Bank as an example of China's commercial banks, it use the three methods to measure interest rate risk. The outcome shows that the increasing of interest rate has not been reduced, but increased the bank's net interest income and net worth of banks. It is in contradiction with the initial logic assumption of this paper, which truly reflected domestic reality that interest rates just are not fully market-oriented in China. The main reasons for this that the term structure of deposit and loan, and the proportion of assets and liabilities in the same period is asymmetry, as well as yield curve moves non-parallelly.While empirical study of interest rate risk is conducted, the three methods are compared with each other in their principles and outcomes. It is not accurate that the Interest Rate Sensitivity Gap, the Duration Model and the Convexity Model are directly carried out to measure interest rate risk.The reason for this is the difference between lending rate and interest rate in same term and imbalance of their changes. Therefore,it suggests to measure interest rate risk with the modified the interest rate sensitivity gap and the duration gap. In theory, when a larger movement of yield cure accures,the duration period can not accurately measure the worth of bonds. The impact of convexity has to be considered. Therefore, In this paper, the interest-bearing cycle of calculation of duration and convexity is quarter, which is more in line with the reality of domestic banking sector.At third, it reviewed the domestic and foreign interest rate risk management practices and strategies. Taking Shenzhen Development Bank as an example, it annlyzes the management strategies of interest rate risk of commercial banks in the condition tightening of monetary. It propose to improve the interest rate risk management.At last,it sum up the thesis.