Research And Relevant Demonstration On Internal Rating-based Approach Of The New Based Capital Accord

Finance is the core of the market economy, and the commercial banks are the most important part of a country's financial system. The stability and development of commercial banks affect a country's economic safety and soundness of foundation.As more and more foreign financial institutions entering China, credit risk management is becoming one of the biggest challenges for our commercial banks. Compared with developed countries, China's commercial banks' credit risk management is still in the initial stage, and the level of credit risk management technology is relatively backward. China has joined the WTO, and a greater degree of openness means that China's, commercial banks will face more brutal competition. In order to align with the world, China's commercial banks have to follow the New Basel Capital Accord for the norms of international banking risk management principles, standards and methods.The paper studies the current China's banking industry credit risk management, internal rating system condition, and gives some advices on how to build and improve the internal rating system for commercial banks, hoping to give some help on how to improve credit risk management of China's commercial banks.This paper includes seven chapters, and the main contents are as following:Chapter one is the preface. It introduces the background and framework of this paper, and then introduces the results of previous studies, the research ideas and the research methodologies. Chapter two provides an overview of credit risk, including the definition, characteristics, classification of credit risk. Chapter three provides an overview of the New Basel Capital Accord, with emphasis on the Internal Ratings-Based Approach (IRB) of the basic framework, and the elements and steps of IRB are introduced. And it gives a comparative analysis of the four main modern credit risk models (Credit Metrics model, KMV model, Credit Risk+ model, Credit Portfolio View model). Chapter four focuses on the KMV model. The KMV model's theoretical basis, the estimation procedures, advantages and disadvantages, as well as practical application of the problems have been studied. Chapter five is the applicability of empirical research on the KMV model in China. The paper uses the latest data to ensure the timeliness of this paper. It selects 24 weeks (January 6,2009 to June 26,2009) relevant data of 10 stocks and uses Matlab software, focusing on the analysis of PD based on the KMV model, and proves the validity and applicability of KMV model in China based on the large amounts of data in China's A-share market. Chapter six analyzes the current situation and existing problems of China commercial banks'credit risk management and puts forward some recommended measures. Chapter seven is a summary of the paper.Credit risk remains the focus of a comprehensive risk management of commercial banks. New Basel Capital Accord has done a great length of presentations and in-depth discussion on the quantitative approach of credit risk, especially on the Internal Rating-Based Approach. Based on the study of the New Basel Capital Accord, foreign advanced model and empirical analysis with the national situation, the paper looks forward to giving some ideas to China's commercial banks on credit risk measure.