Study On Interest Rate Risk Management Of China’s Medium And Small Sized Commercial Bank In Theinterest Rate Liberalization Reform

As the price of fund, interest rate also is an intermediate variable of the monetarypolicy and a key factor of social resource allocation, which affects the balance of risksand benefits of market participants. What’s more, Interest rate liberalization as a mainpoint of financial deepening reform,, not only get deep concern in theory, but also hasaccumulated valuable experience or success or failure in practice around the world. Thereform of interest rate liberalization has experienced18years from the beginning in1996,and currently is going for the final crucial stage. During this time, China’scommercial banks get rapid development, especially some medium and small sizedcommercial banks grow fast, whose scale and profitability are climbing fast.Therefore,it is necessary to study the interest rate risk of medium and small sized commercialbanks based on the background of interest rate liberalization.This paper mainly study the impact of interest rate liberalization for medium andsmall sized commercial banks and seek for the long and short term coping strategiesbased on the qualitative analysis and quantitative analysis methods, also combined withthe standard analysis and model analysis. In this paper, the main contents include: thetheoretical basis of the interest rate liberalization, interest rate risk management andrelated mathematical modeling, the practice experiences of interest rate liberalization inthe domestic and overseas as well as how to choose the reform path for China. As forthe framework of this paper, this paper is developed in six chapters. the introduction ofthis paper is mainly in the first chapter, and the content of the second chapter isliterature reviews. Besides, in the next two chapters, this paper makes use of thequalitative analysis and quantitative analysis methods separately to study and discussthe interest risks the medium and small sized commercial banks faced with. At the finalof the paper, focusing on exploring short-term and long-term strategies policy for smalland medium commercial banks when interest rate reform happens. Based on the aboveanalysis, this paper could get the following conclusions:①The reform of interest rate liberalization could be generally divided into radicalmode and progressive mode. Overseas experience shows that a progressive modereform have greater probability of success. China have formed her own characteristicsprogressive mode according to her own conditions.②Considering the booming of China bank industry, though having huge number of banks, the total amount of five state-owned commercial banks in terms of size, profitlevels, total deposits and loans of asset occupied half of the market, however, small andmedium commercial banks are at a disadvantage position.③Empirical analysis shows that China’s small and medium sized commercialbank balance sheet structure are short by long loan type.④Fluctuations in interest rates affect short-term performance of smallcommercial banks, long-term interest income of the largest joint-stock commercialbanks are affected less by interest rate fluctuations.⑤Domestic commercial banks are short of interest rate risk managementawareness and capacity, especially for small and medium commercial banks.⑥With the liberalization of interest rates gradually increasing, the small andmedium commercial banks put emphasis on interest rate risk management after tastingthe bitterness of interest rate risk management deficiencies.⑦Impact of the interest rate liberalization for small and medium commercialbanks could be divided into short-term stage effect and long-term strategic effect, thechoice of short-term measures mainly based on the perspective of adapting to surviveand turning crises into opportunities. However, the long term measure are mainly fromthe ability improving and operation strategy.