Exchange rate risk measurement and economic capital allocation of commercial bank: a case of China

摘要

The huge price changes caused by market risk will result in a significant loss of financial institutions' assets, so how to effectively control and manage market risk, based on accurate measurement of market risk, to enhance the ability to resist risks and to enhance market competitiveness is becoming an important task facing the bank manager. Economic capital is risk capital for unexpected losses commitments; economic capital management is increasingly being proven to be a core tool for balancing risk management and value creation. Exchange rate risk is one of market risk. China's commercial banks generally have a lot of foreign exchange assets. With the deepening of the reform of the RMB exchange rate, how to effectively manage the exchange rate risk has become a tough problem that bank managers must solve. This paper tries to measure the exchange rate risk of Chinese commercial banks using the central parity exchange rate data of RMB to U.S. dollar and the GARCH model, on the basis of the study of market risk VAR models and economic capital allocation principle, and to econometrically analyze the economic capital allocation issues of commercial banks at a specific time range.