A Study Of Interest Rate Risk Management Of City Commercial Bank Based On The Interest Rate Liberalization

As the pace of the interest rate liberalization reform gradually accelerates,the large variability and uncertainty of the interest rate impacts the main market inevitably.As the main market inevitably,commercial banks,will directly face the challenge of the interest rate liberalization.Despite the proportion of off-balance sheet revenue in the commercial banks is increasing these years,but the interest income remains the main source of income in our country,paticularly in city commercial banks.Therefore,interest rate risk is still the one of the main risks in city commercial banks.and interest rate risk management should get more attention.The interest rate risk management process is often divided into four processes.They are interest rate risk identification,interest rate risk measurement,and interest rate risk monitoring,interest rate risk control.And interest risk measurement is an effective basis for the implementation of interest risk management.So the main object of this paper is the interest rate risk measurement problems.In order to better explore the interest rate risk measurement problems of China's city commercial banks,the paper first introduced the process of China's interest rate liberalization,from the content of interest rate liberalization,the process and the prospects of China's interest rate liberalization,respectively.Then the paper analyzed the interest rate risk factors which the city commercial banks faced in the process of interest rate liberalization reform. First,there's a brief overview of the development of city commercial banks.Then the paper analyzed transitional risk in the beginning of the reform and permanent risk in the process of the reform respectively. The transitional risk mainly refers to the significantly increased in interest rate and the volatility and frequency of interest rate.The permanent risk can be dividede into four types,namely, repricing risk,yield curve risk,basis risk and optionality risk. At last,the paper analyzed the ability of city commercial banks to against interest rate risks from capital adequacy ratio and debt to capital ratio.How to seek a best kind of interest rate risk measurement for city commercial bank under the background of interest rate liberalization is the main objective of the study. So the article first intoduced the three main interest rate risk measuring models,namely,the Interest-sensitive Gap model,the Duration model and the VaR model.Then analyzed and compared the three models from the angles of the complexity of the bank's business,the volume of the business,combined with the characteristic of the three models,different model application conditions and so on. Interest-sensitive Gap model is the first model which is used in commercial bank interest rate risk management.Because of its less assumptions, easier operation,lower cost,it still is the first choice by city commercial bank.Duration model calculates the future cash flows by time-weighted.It takes the time factor into the analysis of interest risk,which makes it more accurate than Interest-sensitive Gap model.VaR model reflects the impact of the fluctuations in interest rates on the portfolio of assets and liablities of commercial banks as a whole,is a comprehensive measure of the overall interest rate risk.However,the sophisticated data,the corresponding model of computer hardware facilities and related software supporting facilities,which the VaR model needs.can't be afforded by present sity commercial banks in China.Therefore,the Duration Gap model is the best choice by city commercial banks.Next,this paper empirically analyze the current status of city commercial banks' interest rate risk management with the Interest-sensitive Gap model, and the feasibility of Duration model on the application of city commercial banks' interest rate risk measurement.First, treasury bonds' term stucture was constucted using cubic polynomial function.Then a discount function was derived using bond dealing data of exchanges by a regression analysis.Finally,the duration of banks'assets and liability was calculated using their years-to-maturity and average interest rate.Though the accuracy of data used in the empirical analysis were not perfect,it could also derive this conclusion:duration model was feasible to measure the city commercial banks'interest rate risk.At the conclusion part of this paper, it presents the relevant strategy and suggestion from the perspective of the banks themselves and its outer financial environment respectively.