Abstract
With China’s financial system reform deepening, interest rate liberalization reform has sharply entered an accelerating course. This paper focuses on the interest rate risk of China’s commercial banks in the process of interest rate liberalization. Based on the literature review on interest rate risk management of commercial banks, this paper carries out an empirical analysis on four forms of interest rate risk under the certain background of China, repricing risk, basis risk, optional risk and yield curve risk. Based on the Interest Rate Sensitive Gap Approach and Duration Model, this paper carries out an empirical measurement of interest rate risk of China’s commercial banks in the process of interest rate liberalization. In the end, this paper proposes the countermeasures and suggestions for the interest rate risk management practice of China’s commercial banks.
Highlights
Interest rate liberalization exerts a profound influence on the risk structure of commercial banks
Yao Yuan (2012) carried out an empirical research based on the date from 7 listed banks from 2007 to 2011, and pointed out that the more-than-one-year asset of China’s commercial banks could not match the corresponding liability, the adjusting speed of interest rate sensitive gap was slower than the change of interest rate, which resulted in the long-term interest rate risk for commercial banks
Optional risk refers to the bad influence caused by the underlying options in the assets, liabilities and off balance sheet businesses of commercial banks
Summary
Interest rate liberalization exerts a profound influence on the risk structure of commercial banks. How to enhance the management of interest rate risk and establish an effectively preventive institution to avoid or compensate interest rate risk has become an absolutely important issue for China’s commercial banks in the process of interest rate liberalization
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