Reasearch On Optimalallocation Of Credit Risk Economic Capital For Bank A

Economic capital can combine risk and return together, and then give an overallprofile of integrated risks and returns in a bank scope with a scientific and sensitiveway. In the Post-Crisis Ear, with the marketization of interest rate, and the activepromotion of Basel Ⅱ and Ⅲ by the regulator authority, strengthening economiccapital management is becoming a powerful tool used to balance risks and return.Economic Capital Management System includes3main parts, which aremeasurement, allocation and performance evaluation. With the application of usefultools such as RAROC(Risk-Adjusted Return On Capital) and EVA(Economic ValueAdded), Economic Capital Management System will play an important active role inresources allocation, transaction pricing and performance evaluation. This will helpbanks continuing improve their business structures under the restriction of capital; andthen improve returns of shareholders.There are4chapters in this article. Chapter1is about the introduction ofresearch background, research aim, and research methodology. Since credit risk is themain risk the domestic banks are facing, then we focused our research on credit riskeconomic capital allocation. Chapter2mainly analyzed the currently used capitalallocation scheme; and found the drawbacks of the scheme. Chapter3and4are themost important parts in this article. In Chapter3, we raised an optimization schemewhich overcame the drawbacks of current scheme. That is, using Non-LinearProgramming model to allocate risk weighted assets under economic capital scheme.Then we compared the two schemes; and the result show that the optimized newscheme significantly enhanced the effectiveness of capital allocation. In Chapter4, wegave more specific suggestions towards further enhancement of the optimizationscheme. These suggestions include measurement accuracy, management granularity,and business operation etc.And in the end, we issued an idea of building an integrateddynamic management circles to continually improve the effectiveness of economiccapital allocation.