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New mechanism of RMB exchange rate risk on the challenge of China's commercial banks


Section: Financial papers a new mechanism for the RMB exchange rate risk on the challenge of China's commercial banks approved by the State Council, since July 21, 2005, China began to implement a market-based, with reference to a basket of currencies , a managed floating exchange rate system. Followed by further promoting China's interbank foreign exchange market, they have introduced the subject to expand the scope of spot foreign exchange market transactions, the introduction of OTC transactions, to expand the scope of forward foreign exchange, swaps, etc. to allow a series of reform measures. Improve the RMB exchange rate reform is to deepen economic and financial reform, sound macro-control system of the important content, while the exchange rate mechanism for the implementation of the new doubt on the operating mechanism of commercial banks and risk management of the new requirements brought about new challenges. An exchange rate formation mechanism reform so that China's commercial banks are facing new opportunities and challenges RMB exchange rate formation mechanism to implement the new arrangements, means that exchange rate volatility than in the past expansion, frequency of change accelerated. Compared with the previous, commercial banks foreign exchange risk will be more explicit, routine-oriented, ability to raise foreign exchange risk management has become more urgent. Commercial banks are facing challenges mainly in: First, the bank accounts and trading accounts while increasing foreign exchange risk faced. New exchange rate mechanism, the purpose of commercial bank transactions denominated in foreign currencies held, clearing the market value of financial instruments will be with the yuan against major foreign currencies exchange rate fluctuations and change. Meanwhile, the bank accounts in foreign currency assets and liabilities such as foreign currency deposits, foreign currency loans, interbank foreign currency lending, investment in foreign currency bonds, also with the exchange rate appreciation and depreciation of the resulting gains and losses. Preliminary estimates indicate that some of China's commercial banks, foreign exchange risk exposure of all large positions, banks face a higher risk of currency mismatch. In addition, if not relatively special arrangements, some of China's commercial banks to hold foreign exchange capital will shrink due to yuan appreciation. China's commercial banks in the past tended to ignore many of the bank account of foreign exchange exposure, the exchange rate mechanism reform, the concept of case management must quickly adjust the exchange rate fluctuations caused huge losses to the bank account. Second, increased foreign exchange risk of bank customers, banks will increase the possibility of damage. Exchange rate formation mechanism reform and exchange rate adjustments will not only directly affect the bank's open positions will affect the bank by the client's financial situation, while the bank's asset quality and profitability impact. Increase the frequency of exchange rate fluctuations, the foreign exchange risk faced by bank customers will increase. Enterprises directly engaged in international trade will lead to losses due to exchange rate fluctuations and ups and downs. For example, China's shipbuilding industry profits have been very modest, modest appreciation of the yuan would lead to its change from a profit loss. Appreciation would lead to its decline in export competitiveness and profit decreased, affecting the ability of enterprises subordinated loans, the bank loans increased risk. From the national experience, in the case of large foreign currency spreads, inward-oriented firms tend to borrow foreign currency loans by banks to meet the financing needs of the local currency, the currency mismatch risk. The 1990s, South Korea and other countries lessons of the financial crisis is that a large number of domestic enterprises through financial institutions borrow foreign currency debt. Once the exchange rate fell sharply, liabilities, corporate foreign exchange risk and losses will be directly into the bank's credit risk and losses. Raise the degree of exchange rate fluctuations in the case, if we blindly opening up of capital, banks will be even greater risks. Third,ralph lauren pas cher, foreign exchange derivatives increased the risks to the bank. August 2, from the beginning of this year, forward foreign exchange business expanded, opening trading period restrictions, while allowing the banks offer their own, and allows bank customers do not involve interest rate swaps for the RMB and foreign currency swap business. The introduction of these measures in promoting the development of bank foreign exchange derivative transactions, while also making the banks face an increased risk of a variety of related. In the provision of forwards, swaps and other derivative products, banks can accurately pricing, hedging and risk management is effective, not only directly determines the profitability of banks, but also determines the competitiveness of the banks, and even viability. At present, different banks offer one-year forward foreign exchange difference has reached 200 basis points, indicating that different levels of the bank's pricing mechanism and there is a big difference between market efficiency to be improved. Four bank foreign exchange business is facing many other types of risk. In addition to exchange rate risk, interest rate risk, counterparty credit risk, foreign exchange operations also face operational risk, foreign exchange control risk, settlement risk, the risk of time zones, anti-money laundering and so on. If you can not effectively control these risks, the bank suffered huge losses as possible. For example, the 2004 National Australia Bank foreign exchange transactions due to operational risk due to loss of more than $ 360 million. In November 2004, the Federal Reserve issued a special practices. Thus bank foreign exchange business and the risks inherent complexity. Course, the risk and return are two sides of a coin bank in the foreign exchange risk, but also may obtain certain benefits. First, the expanded range of exchange rate fluctuations, financial institutions and businesses to avoid foreign exchange risk will increase the demand. Between foreign currency and RMB forwards, swaps, trading volume will be increased accordingly. Engaged in foreign exchange derivatives trading process, if banks can effectively use their skills for a reasonable price or hedge risk, it could profit from. Meanwhile, customer demand for foreign exchange-related increase in financial products, but also the development of foreign exchange business for banks to develop new products, foreign exchange provides a good opportunity. Secondly, the exchange rate floating range expanded, the continuity of the foreign exchange market trading and market liquidity will be more demanding,abercrombie pas cher, the introduction of market-maker system will be inevitable. Constantly quoted by market makers, trading, maintaining market liquidity, and spreads through the compensation of the costs and profits. In March, Bank of China, Deutsche Bank, Citibank, HSBC bank and other nine officially became the first Chinese foreign exchange market foreign currency exchange traded products between the market maker. Can be expected that the yuan against foreign currencies market maker system will be introduced in the near future. Face of the new exchange rate mechanism, the industry many people habitually think, a new mechanism of commercial banks is both an opportunity and a challenge. The judge in the general sense, the macro is set up, but from the specific results, for a specific bank, the changes to the environment or an opportunity or a challenge; either Nirvana? Regeneration, or may be failure. The most important matter, commercial banks in order to fully understand their risk management capabilities to enhance the importance and urgency. Second, China's commercial banks and foreign exchange risk management status gap domestic banks in the past not been operating under a flexible exchange rate mechanism, the lack of the necessary business and risk management experience and skills, past all the foreign exchange risk management system, technology, personnel, systems have not yet experienced the flexibility of the exchange rate of the test. As China's commercial banks had long been in the business environment of fixed exchange rates, foreign exchange risk awareness in general is rather weak, effective risk management and control system to be established, foreign exchange risk management is not optimistic. Mainly in: first part of the bank board of directors and senior management monitors foreign exchange risks to be improved. Board of Directors bears the ultimate management responsibility for foreign exchange risk, foreign exchange risk management responsible for approving the strategy, policies and procedures, responsible for determining the Bank's foreign exchange risk tolerance. In order to effectively carry out these responsibilities, the directors and senior management must fully understand the foreign exchange risks. However, the directors of commercial banks and even many senior managers lack of foreign exchange risk management, professional knowledge and skills, and even lack the basic understanding of foreign exchange risks. Some banks are obviously foreign currency exposure is long, even mistakenly believe that the yuan appreciation on our favor. Some thought has not been able to timely adapt to the new exchange rate mechanism, foreign exchange risk management is still ignoring the necessity and urgency. More general problem is that the board of directors and senior management do not have the position of the Bank's foreign exchange exposure, can not tell the Bank's foreign exchange risk level and situation, in this case, the set risk limits can only be a luxury talk. I am afraid that such a board in the foreign exchange risk management is difficult to play set the tone functions. Second, foreign exchange risk policies and procedures to be further improved, enforcement needs to be strengthened. Most of the bank's foreign exchange risk management policies and procedures from the professional requirements of a certain distance. For example, from the policies and procedures covering the branches and product lines, China's policies and procedures, many banks did not fully cover the various branches of commercial banks, and bank product lines of the table,abercrombie paris, the table outside the business. System implementation problems should not be ignored. Many systems remain on paper only, but the actual implementation of the weak, or simply nobody to enforce them. For example, many banks valuation of foreign exchange products and pricing policy issues in the implementation of 100; how a range of product, duration, expected benefits within the requirements for a single combination of factors to determine the overall counterparty credit limits, are still subject to internal division of labor organizations, business constraints; most of the bank's market risk model validation testing policy is not effectively implemented. Third, foreign exchange risk identification, measurement, monitoring and control needs to be improved. Foreign exchange risk can not be measured, can not manage, will simply not do effective management. Compared with similar foreign banks, China's commercial banks in the foreign exchange risk measurement there is a big gap. For example, foreign exchange risk exposure of the twentieth century in the seventies and eighties of the commonly used risk measurement tool, and our bank has only just begun trying to calculate the exposure, some banks even have so far undertaken by the Bank can not accurately calculate The single currency open position and the total exposure of all foreign currency positions. Many banks even though from the international introduction of Kendor +, Panaroma and other standardized risk measurement system, able to calculate the VaR value, but the fatal flaw is the VaR value has not been integrated into the bank the daily risk management process, such as setting trader limits and the product limit and so on. Risk monitoring and control capabilities than the risk measurement is much weaker. Citigroup, HSBC and other large international banks decades ago put the global foreign exchange business exposure control in only a few millions of dollars, even millions of dollars, and our many banks despite the international traffic is much smaller compared with the big banks, However, even without exposure to inject some positions are still billions of dollars, the risk exposure is the major international banks a hundred times, do not do not take calculated risks without. Fourth, foreign exchange risk, internal control needs to be strengthened. Some banks and foreign exchange have not yet established independent business operations and risk management of foreign exchange control department. Internal audit of the foreign exchange risk management system audit is not comprehensive enough, there is no reasonable and effective audit approach. The key problem is the lack of real domestic banks and foreign exchange risks of foreign exchange business are familiar with the internal audit staff. Because salaries are not competitive, many banks lack even the trading prospects of qualified foreign exchange trader, these are more difficult to configure the internal control department. As the foreign exchange trading, foreign exchange risk have a strong technical, professional internal audit staff is not difficult to find bank foreign exchange business and the potential risk points. Real problem is that almost no one with the internal audit department to carry out the audit for the ability of foreign exchange risk, in addition, most banks have not been for the external audit of foreign exchange risk. Three, seize opportunities, meet challenges, to raise the overall level of foreign exchange risk management commercial banks to effectively manage foreign exchange risk for the stability of the banking system and exchange rate formation mechanism reform, the importance of the success of self-evident. Compared with the industrial and commercial enterprises, banks involved in foreign exchange risk to the huge size and much more. If the risk mismanagement, not only will produce micro-risks,franklin marshall soldes, but also easily lead to macroeconomic risks. From the world's major foreign exchange market, the commercial banks has always been a key player in the foreign exchange market, there is no depth in the bank, it is difficult to establish an effective foreign exchange market. Analysis of the exchange rate impact of a new mechanism for the banking industry, people outside the banking sector from the point of view tend to be assessed, and as bank regulators, we are willing to, should, one by one bank for analysis. Overall look is actually offsetting positive and negative factors into account, the real world, for the specific micro-entities, the loss is a loss, it will affect the bank's solvency. This means that, from a macro perspective of the impact of exchange rate adjustment on the banks one by one with the assessment from the micro perspective, there is a difference. As regulators, we are not content only to produce the We want to know the quantitative extent and impact of the specific impact of each bank, rather than simply come to the CBRC since its inception recognized the importance of effective regulation of market risk. In the March 1, 2004 start of the In March this year, the CBRC issued the Recently China Banking Regulatory Commission and timely development of the At this point, the inspection tool, a relatively complete market risk management and supervision and regulation system has been basically established. Currently, many banks have been or are actively in accordance with the regulatory requirements of the system distinguish between bank accounts and trading accounts, some banks have already begun to establish include interest rate risk, foreign exchange risks, including market risk management system, the need to provide for market risk capital banks have already begun in accordance with regulatory requirements, provision of capital. RMB exchange rate formation mechanism for the adjustment of commercial banks is critical to effective supervision in accordance with the regulatory requirements, including foreign exchange risk as soon as possible complete,

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