Evaluation Of The Economic Capital Management Of Commercial Banks Based On Performance

What the commercial banks operating essentially are risks，that determine theyhave to make profits on the guarantee of adequate liquidity and security, therefore it isnecessary to fully consider the risk factors in performance appraisal. Commercialbanks generally cover the expected losses by provision reserves, for the unexpectedparts, it requires a certain amount of economic capital to make up for. Economiccapital management fully reflects the management of modern commercial banks, withbetter coordination between risks and returns. Economic capital is a useful tool towithstand risk and create value, and will play a much more important role incommercial bank management. However, introducing of economic capital inperformance appraisal is not on the purpose of avoiding risks，but to improve thestandard of risk measurement and adjustment technology. Economic capital canreflect the real profits, with accurately estimation of the possible unexpected loss，thusto guide business decisions and management of commercial banks.The paper concludes the basic theories of performance appraisal at home andabroad firstly，then focusing on the analysis of the problems at present interiorly.Combined with the foreign commercial bank reform experience, the development ofdomestic risk management and business requirements，and the related policy,thepaper discusses the necessity and feasibility of the introduction of economic capitalmanagement. Secondly, the paper analyses thoroughly the main content of the RiskCapital Framework： the measurement of economic capital, economic capitalallocation, and the Risk Adjusted Performance Measurement(RAPM). On this basis,we select statistical data of ten commercial banks from2004to2011, and choices theRisk-Adjusted Return On Capital(RAROC) as the main index, to study the applicationof the economic capital in commercial bank performance evaluation approach, and itsadvantages and limitations, through the metering of RAROC, and the comparativeanalysis approach of traditional performance evaluation. Then we use the WeightedLeast Squares (WLS) to fit the multiple linear regression model, from the scale ofcommercial Banks, risk control, business structure levers, to study the influence on RAROC, and then puts forward the ideas and methods to promote China’s commercialbanks business performance.