The risk management strategies commonly used by commercial banks can be roughly summarized into five strategies: risk diversification, risk hedging, risk transfer, risk avoidance and risk compensation.
1. Risk diversification
Risk diversification refers to the strategic choice to spread and reduce risks through diversified investments. The old investment saying "Don't put all your eggs in one basket" illustrates this point vividly.
The theoretical basis for risk diversification is Markowitz's portfolio theory. He believes that as long as the correlation coefficient of the return rates of two assets is not 1 (that is, two assets that are not completely positively correlated), diversified investment in two assets can reduce risks.
For a portfolio composed of multiple independent assets, as long as the number of assets in the portfolio is large enough, the non-systematic risk of the portfolio can be completely eliminated through this diversified investment strategy. . According to the principle of diversified investment risk analysis, the credit business of commercial banks should be comprehensive and should not be concentrated on the same business, the same nature or even the same borrower.
2. Risk Hedging
Risk hedging refers to offsetting the potential risk of the underlying asset by investing or purchasing certain assets or derivatives that are negatively related to the fluctuation of the underlying asset’s returns. A strategic choice for loss.
Risk hedging is very effective in managing market risks, such as interest rate risk, exchange rate risk, stock risk and commodity risk, and can be divided into two situations: self-hedging and market hedging.
3. Risk transfer
Risk transfer refers to a strategic choice to transfer risks to other economic entities by purchasing certain financial products or taking other legal economic measures. .
Risk transfer is divided into insurance transfer and non-insurance transfer
IV. Risk avoidance
Risk avoidance means that commercial banks refuse or withdraw from a certain business or market. Strategic choices to avoid taking on business or market risks. To put it simply: No business, no risks.
In the risk management practice of modern commercial banks, risk avoidance can be achieved by limiting the allocation of economic capital for certain businesses.
For example: Commercial banks first quantify the risks faced by all businesses, and then determine the allocation of economic capital based on the risk strategy and risk appetite determined by the board of directors, which is ultimately reflected in various restrictions such as credit lines and transaction limits. condition.
For businesses that are not good at and unwilling to take risks, commercial banks allocate very limited economic capital and set up very limited risk tolerance, forcing the business department to reduce the risk exposure of the business, or even completely Exit this business field
Without risk, there is no profit. Risk aversion strategies naturally lose the opportunity to gain profits in this business field while avoiding risks. The limitation of risk aversion strategy is that it is a negative risk management strategy and should not be the dominant strategy for risk management of commercial banks.
5. Risk compensation
Risk compensation refers to the strategic choice of commercial banks to price compensation for the risks they bear before the business activities they engage in cause substantial losses.
For situations where effective risk management cannot be achieved through risk diversification, risk hedging, risk transfer, and risk avoidance, commercial banks can add a higher risk premium to the transaction price, that is, by increasing risk returns. , receive compensation for risk-bearing prices. Commercial banks can fully consider various risk factors in financial asset pricing in advance and obtain reasonable risk returns through price adjustments. For example, in loan pricing, commercial banks can give appropriate interest rate concessions to high-quality customers with higher credit ratings and who maintain long-term cooperative relationships with commercial banks; while for customers with lower credit ratings, commercial banks will set benchmark interest rates at a higher rate. basically raise interest rates. Legal basis:
"Interim Measures for the Management of Personal Financial Management Business of Commercial Banks"
Article 39: Commercial banks shall independently calculate the capital costs and benefits of financial management plans and adopt scientific and reasonable methods. The calculation method predicts the rate of return of a financial investment portfolio. Commercial banks are not allowed to sell financial plans that cannot be independently measured or have a zero or negative rate of return.
Article 45 Commercial banks shall implement an approval system and a reporting system when conducting personal financial management business.
Article 46 A commercial bank shall apply to the China Banking Regulatory Commission for approval to carry out the following personal financial services:
(1) Guaranteed income financial management plan;
(2) New investment products with guaranteed returns designed for personal financial management business;
(3) Other personal financial management businesses that require approval by the China Banking Regulatory Commission.