The Interest Rate Market And China's Commercial Banks To Interest Rate Risk Management

As one of the important variables of the economy, the interest rate can optimize the allocation of resources and influence the supply & demand of funds, and it is a very efficient tool to adjust the economy adopted by the government. Interest rate liberalization is the key to realize finance and economy liberalization; the process of interest rate liberalization is impassable in finance and economy liberalization. In the last 20 years, China has made great achievements in the financial system reforms, but the reform of interest rate liberalization stepped comparably slowly and the interest rate can't fully play its role. With the deepening of our financial system reforms and the accessing to WTO, the reform of the interest rate liberalization has become the most important one.At present, our government has made out the frame of the interest rate liberalization, and the goal of interest rate liberalization is also clear. From now on, the reform of the interest rate liberalization will be accelerated progressively. We can predict that the interest rate liberalization will influence the financial circles of China and even the whole economic operation deeply. On one hand, it can optimize resources distribution and allocate funds according to the market law. On the other hand, it will bring uncertainty to different kinds of economic subjects, since the fluctuation of the interest rate will increase greatly.As one of the subjects of our economy, the commercial banks will face greater risks too. As we all know, the operation risks of commercial banks are as follows: credit risks, interest rate risks, liquidity risks and exchange rate risks. During the process of interest rate liberalization, the interest rate risks will become the most important risks of commercial banks', and the precaution and management of interest rate risk will become the main content of risk management of commercial banks. As the interest rate of our country was strictly restricted by the central bank for a long time, our commercial banks are short of management experience of interest rate risk. Most of them have no interest-pricing module, lacking of interest rate risk measurement and controlling system. So how could the commercial banks face the interest risks which was brought by the changing interest environment, and how to identify, measure and manage the interest risks will become the most important subject studied by commercial banks and other financial institutions. The author devotes an analysis to the above mentioned aspects.Chapter one introduces the implementation of interest rate liberalization in our country. First, it states the meaning of interest rate liberalization and the importance of the interest rate liberalization reform. Then it takes a review of the interest rate liberalization steps which have been taken and makes an expectation of this reform. Finally, it devotes an analysis to the next steps of interest rate liberalization which should be a gradual process.Chapter two makes an analysis of the risk which the commercial banks have to face in the changing interest environment. First, it analyses the trend of RMB interest rate and makes a conclusion that at the beginning of interest rate liberalization reform,the RMB interest rate will rise slightly; and in long run, the foreign currency interest rate will approach the level of international interest rate. On the basis, it points out that the interest rate risk which will be faced by commercial banks can be divided into temporary risk and permanent risk. The temporary risk is brought by the change of the central bank's management regime, while the permanent risk rises from the internal interest rate risk management of commercial banks. The permanent risk includes reprising risk, yield curve risk, basis risk and optionality risk.Chapter three introduces the method of interest rate risk measurement. After realizing the interest rate risk, the commercial banks should measure the risk because effective management of interest rate risk grounds on the exact...