The Research On Economic Capital Allocation For Credit Risk In Commercial Banks

Capital is the foundation to resist and realize the stable operation and sustainabledevelopment of commercial banks, so, commercial Banks pay special attention to thecapital management and value management. In the practice, it’s gradually formed away of capital management which is the economic capital management in ourcommercial bank. The application of economic capital management plays animportant role in risk management, asset allocation and product pricing, graduallybecame the core of commercial bank management technology.Economic capital allocation is one of the most important parts of the economiccapital management. The aim is to enhance the risk management through the riskmeasurement, and to fit the limited capital into the corresponding business. Creditrisk is one of the most important risks in our commercial banks. The excessiveconcentration of credit risk is a threat to the bank’s survival and the whole financialsystem. Therefore, it’s particularly important to measure and allocate credit riskeconomic capital. Interest rate risk is the second important risk to determine theeconomic capital after credit risk. Both risks have important correlation. However atpresent, the commercial bank’s economic capital research ignoring the correlation,and lacking a feasible economic capital allocation framework, which causes theefficiency of measurement and reliability allocation declined, the level ofmanagement is not high.Economic capital allocation is the realistic problem in our commercial bank’sreform. Based on the theoretical analysis of the economic capital allocationintegrating credit risk and interest rate risk, This paper is try to construct a basicconfiguration framework“credit risk measurement-credit risk economic capitalmeasurement-credit risk economic capital allocation-evaluation and commissioning ofcredit risk economic capital allocation”. And then based on the sample bank tosimulate and analyze, we found that it is more reliable. Combining with the presentsituation of our commercial banks，we also found that a good allocation frameworkand considering the correlations between the risks are good for the efficiency ofeconomic capital allocation in our commercial banks.