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Economic capital management of commercial Banks

2018-10-18 来源: 51due教员组 类别: Paper范文

下面为大家整理一篇优秀的paper代写范文- Economic capital management of commercial Banks,供大家参考学习,这篇论文讨论了商业银行的经济资本管理。经济资本是一个风险管理的概念,是用于抵御非预期损失的虚拟资本,在数值上等于在一定时间和一定置信区间商业银行非预期损失的倍数。经济资本不是真正的银行资本,并且银行选择的置信区间不同,经济资本的数值也不同。

Economic capital management,商业银行经济资本管理,essay代写,paper代写,作业代写

As a general definition, the capital of a bank is the equity capital already held by the bank, which aims to prevent risks such as the reduction of the value of positions or commercial losses, so as to protect depositors and general creditors from losses. Bank capital has three different concepts: book capital, regulatory capital and economic capital.

Book capital is an accounting concept, listed on a bank's balance sheet, equal to the balance of assets minus liabilities. However, the concept of book capital of commercial Banks is slightly different from that of ordinary enterprises. In addition to owner's equity, book capital of commercial Banks also includes reserves recognized by regulatory authorities, subordinated debt and so on.

The regulatory capital is the minimum amount of book capital that commercial Banks should keep according to the regulations of the regulatory authorities. It is a quantity calculated according to the regulations and generally a certain proportion of risk assets. Basel capital agreement require commercial Banks to keep the minimum regulatory capital calculation formula is: market risk and operational risk capital requirements multiplied by 12.5, plus for the risk-weighted assets of credit risk, get the denominator, namely the total risk-weighted assets, molecular regulatory capital, the division by get the value of capital ratios, the proportion is not less than 8%.

Economic capital is a concept of risk management, which is a virtual capital used to resist unexpected losses, which is equal to the multiple of the unexpected losses of commercial Banks in a certain period of time and a certain confidence interval. Economic capital is not really bank capital, and the value of economic capital varies with the confidence interval that Banks choose.

First, book capital is greater than or equal to the regulatory capital. Otherwise, the regulatory authorities will take coercive measures to require Banks to replenish capital or reduce business size to reduce the risks they take. Book or greater economic capital: second, because of the economic capital reflect the real risk of commercial Banks, eventually to digest the risk capital is the real bank capital, if the bank economic capital when making economic capital budget limit than book capital is high, the real loss will not be enough real capital to cover losses; Third, economic capital is greater than or equal to the regulatory capital: if the regulatory capital is greater than the economic capital, commercial Banks will take the capital arbitrage action, thus reducing the regulatory capital requirements without reducing the real risk. Taken together, there exists the following dynamic balance relationship among book capital, regulatory capital and economic capital: book capital is greater than or equal to economic capital.

Regulatory capital emerged and developed in the 1980s, marking the birth of the 1988 agreement on harmonization of capital calculations and capital standards for international Banks. The 1988 capital accord had two objectives. The first was to strengthen the stability of the international banking system and the second was to reduce the unfair competition among Banks. Regulatory capital is a legal obligation that Banks must abide by.

Economic capital emerged and developed in the 1990s. As the 1988 capital accord and the 1996 revision were mainly aimed at credit and market risks, and the risk sensitivity was insufficient, the internationally active Banks began to develop their own models to allocate capital for specific transactions in order to better manage their own risks. The risks covered by economic capital include credit risk, market risk and operational risk. The driving factors of economic capital development are the intensification of market competition and the turbulence of financial market.

Regulators use it as a useful reference for improving regulatory capital by examining the achievements of internationally active Banks in economic capital management. The capital agreement attaches great importance to the internal risk assessment of the bank and is the basis for determining the minimum regulatory capital requirements. Since capital agreements allow Banks to use internal models to calculate regulatory capital, the risk assessment process used to calculate economic capital needs can also determine their regulatory capital requirements.

Still, there are essential differences between economic capital and regulatory capital. Regulatory capital, which is required by regulators, does not represent a bank's ability to actually absorb unexpected losses. Regulations do not necessarily reflect the risk characteristics of a particular bank, and risk-weighted assets cannot be the correct measure of all risks. Economic capital reflects the demand of the market and the risk management within the bank. It is the capital needed for taking risks and reflects the risk characteristics of the bank itself.

Economic capital is used to resist the unexpected loss, which is the standard deviation of the expected loss, and economic capital is the multiple of the expected loss. Therefore, the measurement of economic capital is related to the measurement of the expected loss and the unexpected loss. Since the credit rating required by the bank is related to the confidence level set, the higher the confidence level, the greater the economic capital required.

Market risks mainly include interest rate risk, stock position risk, exchange rate risk, commodity risk and option risk. In Ⅱ capital agreement, interest rate risk due to difficult to accurate measurement, so there are no rules for interest rate risk capital requirements, but rather on the pillar Ⅱ regulatory oversight.

According to the definition of Basel committee, operational risk is the risk of loss caused by imperfect or problematic internal procedures, personnel and systems or external events.

Compared with mature credit risk and market risk measurement technology, the measurement of operational risk is still in the primary stage. For simplicity's sake, some Banks simply allocate 18-25% of their total capital to operational risk prevention.

From the perspective of the bank as a whole, the aggregate risk of credit risk, market risk and operational risk should be less than the direct sum, but in reality, it is difficult to determine the correlation, so the direct sum method is adopted.

Because economic capital itself depends on the risk of each branch or each business, or the actual value of unexpected losses, it is very scientific to allocate it. On the one hand, the economic capital of each department, branch or each business should be distributed according to the amount of risk and unexpected loss. On the other hand, the amount of economic capital taken up by departments, branches or businesses means the amount of risk taken. Specifically, the role of economic capital includes the following aspects:

As a kind of virtual capital, economic capital when it is close to or more than in number when bank book capital, explaining the bank's risk level is close to or more than the actual capacity, then Banks either through some way to increase the book capital, either control or retract their risk-taking behavior, otherwise its security will be threatened, and influence of bank's credit rating, a rating agency.

Traditional measures of Banks' earnings, including return on equity and return on assets, have the greatest disadvantage of not taking risk into account. Out of the need of risk management, western commercial Banks have gradually emerged a new risk-based assessment profitability index - the risk-adjusted capital return rate. The method, pioneered by bankers' trusts in the 1970s, was originally designed to measure the risk of a bank's credit portfolio and the amount of equity required to limit risk exposure at a given loss rate. Since then, many big Banks have developed the method of RAROC, which is based on economic capital and has become the core performance evaluation indicator of the banking industry.

Traditional loan pricing methods do not consider the cost of capital. Implementing economic capital system of the bank use risk-adjusted return on capital model to determine the loan pricing level, the greater the risk that the loan, the more capital configuration for the business, in order to make the loan profit, it must meet the minimum standard of return on capital, namely to make the economic profits of the business or economic added value is positive.

The risk cost is equal to the expected loss in the loan, and the economic capital is equal to the unexpected loss in the loan, and RAROC can calculate the return on the capital base line by replacing it with the bank's return on capital base line.

The bank is composed of multiple departments and multiple products. Senior management needs to decide which products to retain, which to compress, which to develop and which to shrink. An important decision basis is the size of economic capital return. Sectors and products that offer a greater return on economic capital to Banks should be retained and developed, and sectors and products with lower returns should shrink or withdraw from the market.

Economic capital has become the international advanced commercial Banks in risk management of general tools, China's commercial Banks to participate in international competition, and in the competition, should also implement economic capital management, and solve the problem: the related concept and technology to across the top and bottom to form the concept of capital constraint, change the blind pursuit of scale expansion does not consider the bottom line of risk management behavior. The capital of commercial Banks is a very precious resource, which should be allocated to business lines and departments with high risk rewards. Establish an internal credit rating system as soon as possible to model the expected loss and unexpected loss of credit risk. The RAROC performance evaluation model is introduced to achieve the balance of risks and benefits and effectively allocate economic capital.

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