The Impact Analysis On Some Bank Under The New Approach To Capital Management

The capital is the foundation for the development of commercial banks. Banks’ managementhas gradually focused on the transition of risk measurement and risk optimization as the core of acomprehensive risk management.2010, the Basel Committee approved the “Basel Agreement III”;2012, the CBRC issued the “commercial banks’ capital management (tentative)” to establish anew standard on banking capital and liquidity regulation. The regulatory requirements on theeconomic capital of China’s commercial banks are gradually moving closer to the internationallevel.However, China’s banking capital management is still used in rough management model, thus，it is difficult to achieve the long-term efficiency goals and short-term efficiency at the same time.China’s commercial banks still remain in perceptual concept of risk assessment of the assets andthe bank’s own ability to resist risks in the operation and management of the business. The banksare still pursuing purely quantitative indicators, such as deposits, profits and issuance volume.Banking business as the economy as a whole with the fluctuations, caused by cyclical peak ofnon-performing assets, has developed into the dominant factor of the economy overheating, andplanted a huge potential risk for China’s banking system.Hence, it has been the key for both domestic and foreign banks to maximize banks’value,strengthen risk management, accurate measure of risk, and allocate banks’ capital, under therequirements of the CBRC. Economic capital management is applied to achieve a balancebetween quantitative risk of loss of capital and the promotion of a bank.In this paper, the economic capital theory is used as a guide to revolution of China’scommercial banks, such as China’s banking problems in the capital quality, capital adequacy andcapital allocation. The introduction of stricter capital management regulatory requirements is theonly way to push China’s banking industry forward. Based on the current situation of China’scommercial banks, this article puts forward ideas and future steps for the implementation ofeconomic capital management in commercial banks in China. The first step is to take the“standard method” or the “internal coefficient method” currently used for the basis of theeconomic capital measurement method, and to establish an initial allocation system with RORACor SVA as the capital efficiency measurement by2018. The next step is to get active models, dataaccumulation, electronic systems ready for the gradual transition to the IRB or "internal modelmeasurement method, and eventually build a perfect Bank economic capital management system.This article draws in some international experience, analyzes the case of a specific foreigncommercial bank in China, by quantitative analysis of the capital adequacy of this bank under thestandards of the new approach. In this paper, I use RORAC model to quantitatively analyze the performance evaluation of the Bank on different business units, considering the domestic banks’liquidity constraints. Last but not least, with historical asset quality issues of the commercialbanks as well as the unique macro-economic situation in China, China’s commercial banks arerecommended to use effective operation measures.