Discussion On Commercial Bank's Interest Rate Risk Management During The Process Of Interest Rates Marketization In China

Interest rate is the core of modern economy and finance.in financial markets, the movement of interest rate can determine a country's monetary and capital markets,thereby throw impact on national economy. It is precisely because interest rates reprent a pivotal role in modern economy, so it is still an object of the tight control in many States until the last century and 70 ages, including the monetary authorities in developing and developed countries have drawn up stringent measures to control the level of interest rates.Yet the economic environment had occurred world-shaking changes after 20th century and 70 ages. at the same time, how the theory of financial will change has become the focus and discussion in theory area, the chief theoy is Ronald.McKinnon and Edward.Shaw's financial repression and financial deepening theory, in practice it can manifested from the financial wave of liberalization which characterized by interest rate liberalization in western countries. the essence of interest rate liberalization include the decentralization of government control over interest rates, so interest rates can free float based on the relationship between supply and demand. The practice of States shows that operation of interest rate market-oriented can promote interest rates close to the equilibrium level. It is a necessary stage during a country's economic development. However, we must note that in the process of marketization of interest rates, the interest rate level and structure will undergo great changes.at the same time,the degree of interest rate fluctuation will volatility increased because a country's market mechanism is not perfect or financial markets are underdeveloped,which resulting in commercial bank's spread of market revenue decreased in the volatile interest rate environment, then it will become a direct threat to the survival of commercial banks. Even the interest rate marketization had completed,the interest rate will keep a float phase because of the macro-and micro environment change, so commercial banks will also face a serious threat of interest rate risk. The interest rate marketization is also an inevitable trend in China's economic development, our country is in a crucial period of the interest rate marketization, in such a new environment put forward the problem of "interest rate risk and its management" and study it depth is very necessary. Therefore, this article focus on Western countries'advanced techniques in interest rate risk management.This article includes five partsThe first part is introductory, this section includes three questions: significance of studying and the relevant literature review; research method and basic framework;the main innovation and shortcomings about this articleThe second part had analyzed the source of interest rate risk about commercial banks, then, the article tells the background of reform process with interest rate marketization in China, while analyzed the potential impact it will taken to bank's intrinsic activities.Part III first analyzes the impact of interest rates marketization on commercial bank's operation environmental, both qualitative and quantitative views show that commercial banks will face serious risks. then, the article focuses on the kind of interest rate risks during the process of interest rates mercerization in China also had analyzed the particularity of our interest rate risk.The fourth part is the core part of this article, this section begins by describing how China's commercial banks to manage interest risks in the process of interest rate maketization. Secondly,the article had comprehensive analyzed the deficiencies that exist in our method.Part V begins witha a fairly evaluation of the foreign commercial banks in interest rate marketization conditions, gives a more systematic expatiation to the major foreign commercial bank's risk management process and risk identification methods, then tells the risk measurement techniques and models used by foreign countries, which including VaR model, limit testing and scenario analysis, another hand this article compares above-mentioned techniques, models which including the strengths and weaknesses as well as the need for application conditions.Part VI is mainly answered the question" how China's commercial banks could improve the ability to manege the interest rate risk".to improve this ability,it can reorganize structure,raise the awareness of risk management,cultivate a high-quality talents,establish a scientific pricing mechanism, improve and standardize a internal risk control mechanism, predict the interest rates more scienctic and so on,The main contribution of the article is drawing lessons from foreign advanced management concept,also combining with the actual situation to study the method of risk management in China's commercial banks. In this paper, the following three areas are still shortcomings:First,In theoretical research, this article still remains on the concept stage to explore new tools in the process of risk management,there is no depth to bank's specific risk management practices. In empirical studies, since the phase characteristics of China's market-oriented, resulting in an enviroment constraints, which making it difficult to carry through empirical research. In addition, this article didn't mention the exchange rate system reform which will throw impact to interest rate risk management; Finally, the intrinsic option risk is a significant risk in interest rate risk management, but also it is a very difficult risk to study, in this area, the paper needs a further research.