Study On Economic Capital Management Of Commercial Banks

One of the important objectives of commercial bank is to seek a balance between risk and return.However,since capital is always scarce and limited,it’s not easy to get high profits in the constraint of limited capital.It not only requires the bank accurately measure the risk of all kinds of assets,but also finds a unified standard of different measurement methods to get an overall measure of the risks related to all sorts of assets faced by banks.The unified standard is naturally the very economic capital.This paper starts from the introduction of the background of the origination of Basel Accord,elaborates the evolution of the capital regulatory requirements,the concepts of economic capital and loss.Then it studies the status quo of economic capital management in the banking industry of China,points out the existing problems in practice,and delves into the latent causes.And then it focuses on the methods of measurement and the allocations of economic capital,including economic capital models pertaining to the three major risks in Pillar I,i.e.credit risk,market risk and operation risk.Finally,it provides an economic capital management scheme for banks based on a case study of a joint-stock bank in China from the perspective of empiricism.This paper makes three outstanding contributions to the literature,which are adherence to the regulatory requirements of capital in Basel Accord,modification and perfection of the mainstream theoretical models in relation to the measurement and allocation of economic capital from the viewpoint of practice,and adoption the latest case study to set up a guideline of the application of the findings of this dissertation..Comprehensively,this dissertation analyzes the necessity of the precise measurement of economic capital,the different measurement methods of economic capital with respect to assets,the overall economic capital measurement of the asset of specific bank as a whole,and the efficient allocation of the limited economic capital.The methods and the scheme proposed hereby have reference value to small and medium-sized banks in China.