2. Commercial banks should choose appropriate and generally accepted measurement methods for different types of market risks in bank accounts and trading accounts according to the nature, scale and complexity of their business, and measure all market risks based on reasonable assumptions and parameters. Commercial banks should accurately calculate quantifiable market risks and evaluate market risks that are difficult to quantify.
Commercial banks can use different methods or models to measure different types of market risks in bank accounts and trading accounts. The measurement methods of market risk include gap analysis, duration analysis, foreign exchange exposure analysis, sensitivity analysis, scenario analysis and using internal models to calculate the value at risk. Commercial banks should fully realize the advantages and limitations of different measurement methods of market risk, supplemented by other analytical means such as stress testing.
Commercial banks should try their best to summarize the market risks (especially interest rate risks) in the measured bank accounts and trading accounts throughout the bank, so that the board of directors and senior management can understand the overall market risk level of the bank.
The board of directors, senior management and personnel related to market risk management of commercial banks should understand the market risk measurement methods, models and assumptions adopted by banks, so as to accurately understand the measurement results of market risk.
3. Commercial banks should take measures to ensure the rationality and accuracy of assumptions, parameters, data sources and measurement procedures. Commercial banks should regularly evaluate the assumptions and parameters of the market risk measurement system and formulate internal procedures for modifying the assumptions and parameters. Major assumptions and parameter modifications shall be approved by the senior management.
4. Commercial banks should revalue trading account positions at least once a day by the back office, the middle office, the financial accounting department or other relevant functional departments or personnel independent of the front office according to the market value. Pricing factors for revaluation should be obtained from sources independent of the front desk or independent verification. The valuation methods and assumptions used by the front office, the back office, the middle office, the financial accounting department and the department responsible for market risk management should be as consistent as possible. If they are not completely consistent, certain proofreading and adjustment methods should be formulated and used. In the absence of market price that can be used for market value revaluation, commercial banks should determine the criteria, acquisition methods and fair price calculation methods for selecting agency data.
5. China Banking Regulatory Commission encourages commercial banks with high business complexity and high market risk level to gradually develop and use internal models to measure risk value and quantitatively estimate the market risk level undertaken. Value-at-risk refers to the estimated maximum potential loss that may be caused to fund positions, asset portfolios or institutions by changes in market risk factors such as interest rates and exchange rates under a certain holding period and given confidence level.
6. Commercial banks that adopt internal models should reasonably select, regularly review and adjust model technologies (such as variance-covariance method, historical simulation method and Monte Carlo method) and model assumptions and parameters according to the business scale and nature of the bank and refer to internationally accepted standards, and establish and implement internal policies and procedures for introducing new models, adjusting existing models and testing the accuracy of models. The inspection of the model should be carried out by personnel independent of the model development and operation.
Commercial banks adopting the internal model should combine the application of the model with daily risk management, and the information provided by the internal model should become an integral part of the process of planning, monitoring and controlling the market risk portfolio. Commercial banks adopting the internal model should correctly understand and apply the calculation results of the internal model of market risk, fully understand the limitations of the internal model, and use non-statistical measurement methods such as stress testing to supplement the internal model method.
7. Commercial banks should implement backtesting regularly, compare the estimated results of market risk measurement methods or models with the actual results, and adjust and improve the market risk measurement methods or models on this basis.
8. Commercial banks should establish comprehensive and strict stress testing procedures, regularly simulate and estimate the potential losses that may be caused by sudden small probability events (such as drastic changes in market prices or sudden political and economic events), so as to assess their loss tolerance under extremely unfavorable circumstances. Stress testing should include qualitative and quantitative analysis. Stress testing should choose scenarios that have a significant impact on market risks, including scenarios with significant losses in history and hypothetical scenarios. Hypothetical scenarios include situations where model assumptions and parameters are no longer applicable, situations where market prices change drastically, situations where market liquidity is seriously insufficient, and situations where major changes in the external environment may lead to significant losses or uncontrollable risks. Commercial banks should use the stress scenarios specified by China Banking Regulatory Commission and designed according to their business nature and market environment to conduct stress tests. Commercial banks should, according to the stress test results, formulate emergency plans when they have a significant impact on market risks, and decide whether and how to improve other policies and procedures for quota management, capital allocation and market risk management. The board of directors and senior management should regularly review the design and results of stress testing, and constantly improve the stress testing procedures. Commercial banks should implement quota management for market risks, formulate internal examination and approval procedures and operating procedures for quotas at all levels, and set, regularly review and update quotas according to business nature, scale, complexity and risk tolerance.
Market risk limits include trading limits, risk limits and stop loss limits, which can be subdivided according to regions, business departments, asset portfolios, financial instruments and risk categories. According to the different functions and limitations of different quotas to control risks, commercial banks should establish a reasonable quota system in which different types and levels of quotas complement each other to effectively control market risks. The total market risk limit of a commercial bank and the type and structure of the limit shall be approved by the board of directors.
Commercial banks should consider the following factors when designing the quota system:
(1) The nature, scale and complexity of the business (including the risk-return ratio, liquidity and volatility of the business);
(2) The market risk level that the commercial bank can bear.
(3) Past performance of the business operation department;
(four) the professional level and experience of the staff;
(5) Pricing, valuation and market risk measurement systems.
(6) Pressure test results;
(7) Internal control level;
(8) Capital strength;
(9) Development and changes in the external market.
Commercial banks should formulate monitoring and handling procedures for over-limit situations. Those exceeding the limit shall be reported to the management at the same level in time. The management at this level should decide whether to approve or not and how long this situation can be maintained according to the policies and procedures of quota management. Exceeding the quota without approval shall be handled in accordance with the policies and procedures of quota management. The management should decide whether to adjust the quota management system according to the situation of exceeding the quota.
Commercial banks should ensure the consistency between different market risk limits and coordinate the limit management of other risk categories such as market risk limits and liquidity risk limits.
10. Commercial banks should establish a complete and reliable market risk measurement, monitoring and control management information system, and take corresponding measures to ensure the accuracy, reliability, timeliness and security of data. The management information system should be able to support the measurement of market risk, backtracking test and stress test, monitor the compliance of market risk limits, and provide relevant contents of market risk reports. Commercial banks should establish corresponding reconciliation procedures to ensure the consistency and integrity of business data of different departments and products, and ensure that accurate price and business data are input into the market risk measurement system. Commercial banks should improve and update management information systems in a timely manner according to needs.
1 1. Commercial banks should formulate emergency plans for situations that have a significant impact on market risks, including taking measures such as hedging and reducing risk exposure to reduce the level of market risks, and establishing emergency response or standby systems, procedures and measures for emergencies such as natural disasters and banking system failures, so as to reduce possible losses and possible damage to the bank's reputation. Commercial banks should take the stress test results as an important basis for formulating market risk emergency plans, and regularly review and test the emergency plans, and constantly update and improve the emergency plans.
12. Market risk reports shall be provided to the board of directors, senior management and other managers on a regular and timely basis. Different levels and types of reports should follow the prescribed transmission range, procedures and frequency. The report shall include all or part of the following contents:
(1) Market risk positions by business, department, region and risk category.
(2) Market risk level measured by business, department, region and risk category.
(3) Structural analysis of market risk position and market risk level.
(4) Profit and loss;
(5) The methods and procedures for market risk identification, measurement, monitoring and control have changed;
(6) Abide by market risk management policies and procedures;
(seven) compliance with the market risk limit, including the handling of exceeding the limit;
(eight) back test and pressure test;
(9) Internal and external audit;
(10) Distribution of market risk capital.
(eleven) suggestions on improving the market risk management policies, procedures and market risk emergency plans;
(12) Other market risk management information. The market risk report submitted to the board of directors usually includes the bank's overall market risk status, risk level, profit and loss status and compliance with market risk limits and other market risk management policies and procedures. Market risk reports submitted to senior management and other managers usually include detailed information broken down by region, business department, asset portfolio, financial instruments and risk categories, and have high reporting frequency.