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Discussion On Interest Rate Risk Management Of Commercial Banks In China And System Design

Posted on:2005-12-03Degree:MasterType:Thesis
Country:ChinaCandidate:S GuoFull Text:PDF
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According to Principles for the Management of Interest Rate Risk, which was enacted by Basel Committee on banking supervision, interest rate risk is what financial condition of bank will confront when interest rate fluctuates unfavorably. Since the 1980s, interest rate risk has become one of the most important risks to commercial banks. As the proceeding of the market-oriented interest rate reform, the interest rate in China will vary unpredictably both in quality and quantity, bringing tough challenge to interest rate risk management of Chinese commercial banks. Moreover, most Chinese commercial banks lack in effective methods to evaluate and control the interest rate risk due to the long history of interest rate restriction in China. Therefore, using the advanced risk management technique for reference and applying to practice combined with IT is urgent for Chinese commercial banks in the process of market-oriented interest rate reform.The thesis briefly reviews the reform process of interest rate system and introduces the strategy of IT outsourcing at first, pointing out the inevitable trend of market-oriented interest rate and analyzing the possibility of IT outsourcing strategy in developing MIS project. Then, it emphatically explains and compares advanced models and methods of measuring and managing interest rate risk of modern commercial bank. After that, it discusses VaR(Value at Risk) in detail. These two parts lay a solid basis for later chapters. Finally, using foreign experience for reference, it puts forward some useful ideas on how to design the interest rate risk management system of banking industry. In the end, a MIS of interest rate risk is set up on the basis of preceding models and methods.This thesis is composed of five chapters.Chapter One is the background of the whole thesis. The reform of market-oriented interest rate is divided into three stages roughly from 1978 to the present. From the adjustment of interest rate level to the improvement of interest rate structure, a series of policies has been issued and carried out step by step. At the same time, IT outsourcing as a new alternative to traditional method of developing MIS has been used more and more widely in banking industry in developed countries. The reform in China promotes the adoption of this advanced strategy, which can accelerate the establishment of risk management information system.Chapter Two is a necessary preparation for the study of the last two chapters, which are the cores of this thesis. Firstly, some basic concepts of interest rate risk are introduced, including the definition, the classification, the relationships to commercial bank's income and net value and the history of interest rate risk management. Secondly, with an emphasis on Gap and Duration, three measurements of interest rate risk are analyzed in detail. Thirdly, the interest rate risk controls are proposed, in which "balance sheet management strategy" and "off-balance sheet management strategy" are explored respectively. All of these strategies, if applied appropriately, can strengthen commercial bank's risk management in China.Chapter Three mainly goes on about VaR(Value at risk). VaR is a newly appeared financial risk management tool in recent years, valuable in extensive applications. Particularly putting the contents of VaR in one chapter makes it easy to understand. There are three calculating methods of VaR model: historic simulation, analytic approach and Monte Carlo simulation. The first two calculations have been shown in the case study in the last part of this chapter. Because of some innate drawbacks, VaR can not be regarded as a perfect tool in risk management.Chapter four is the core of the thesis. Based on the analyses in the two former chapters, this chapter tries to sketch a scientific interest rate risk management procedure at first, and then design the risk-measuring index system for commercial bank managing interest rate. The index system integrates Gap and Duration with VaR, whic...
Keywords/Search Tags:interest rate risk management, Gap, Duration, VaR(Value at Risk), management information system
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