Interest Rate Risk Management Techniques Of Commercial Banks-based On The Term Structure Of Interest Rates

The interest rate is one of the most important variable in thefinancial markets. It can be used as the lever of social resourcesconfiguration, and is one of the important means that government tointerfere with the macroeconomic performance. In the mid-1990s, China’sinterest rate has been in government control state, small changes ininterest rates by the central bank to directly determine the market interestrate and mechanism is useless. At this stage, due to lock the interest rate,and therefore interest rate risk is not obvious.Since China’s interest rate reform which started form1996, interestrates have gradually shifted from full government control freedom, Suchas inter-bank lending market opening, treasury bonds to market tenderissue and thus the formation of market-oriented interest rates and so on.China’s basic interest rate curve portrayed by the market, while assets andliabilities of commercial banks on behalf of financial institutions alsoexposed to interest rate fluctuations in the environment, that alsobeginning to face a greater interest rate risk. At the same time, China’s large commercial banks have been the provinces behavior clearing house,Dispersion of interest rate risk, and require even more management costs.In order to management the interest rate risks better and have a moreeffective performance appraisal. Commercial banks through the internalfunds transfer pricing to focus on money management, and then centrallymanage interest rate risk. In addition, the phenomenons of extreme risksin the financial crisis are beginning to be included in the management ofcommercial banks.With the acceleration of the process of mercerization of interest rates,and the new features of the modern commercial bank interest rate riskmanagement. This article intends to build a modern commercial bankinterest rate risk management process, analyses bond risk measure for thesame duration, the benchmark interest rate curve construction, internalfunds transfer pricing and interest rate risk stress tests of theoreticalresearch and case discussion, to further analysis of China’s commercialbanks interest rate risk management issues.