Dissertation > Economic > Fiscal, monetary > Finance, banking > China's financial,banking > Financial organizations, banks > Commercial banks ( specialized banks )

A Reference Research on the Application of Financial Derivatives in China’s Commercial Banks

Author XieHai
Tutor ChangQing
School China Agricultural University
Course Agricultural Economics and Management
Keywords Commercial Banks Financial Derivatives Motivation Internal Conditions Development Road
CLC F832.33
Type PhD thesis
Year 2014
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Currently, the internal and external economic environment faced by commercial banks in China has been profound changed. The domestic economic of China has a significant growth recession, and there will be a series of measures to promote market-oriented reforms. All this will present a huge challenge to the commercial banks of china. Throughout history, this paper found that China’s commercial banks are facing the same environment with U.S. commercial banks in the1970s. At that time, the U.S. commercial banks’business transformation had a great development by means of the application of financial derivatives, which provided a useful reference to China’s commercial banks. Financial derivatives business has become important source of non-interest income to the major commercial banks and financial institutions in West Country. Financial derivatives as an important part of financial innovation and development are an important direction to the development of commercial banks. It is beneficial to change the customer structure of commercial banks, upgrade the structure of income, and realize the transformation of business structure, help to improve the level of risk management of commercial banks. It will have a significant impact on the operation and development of commercial banks.This paper focuses on the core issues that why the commercial banks need to apply financial derivatives, what kind of internal conditions needed to the application of financial derivatives and what kind of development road should be took by commercial banks to apply financial derivatives. This paper analysis the development of financial derivative of U.S. commercial banks through example analysis, demonstrate the motivation of commercial banks to participate in the financial derivatives market, makes clear the internal condition of commercial banks to implement the requirements of financial derivatives. This paper reference the development path and environmental conditions of the U.S. commercial banking, analysis the differences between China and U.S. in environmental conditions, then this paper puts forward a strategies of implement step by step and supporting measures. This is the first comprehensive and systematical reference research on motivation, internal conditions, development status, timing of development, environmental conditions and supporting measures about the application of financial derivatives, and for the first time gives a development road with Chinese characteristics about the application of financial derivatives systematically.The results are:Firstly, financial derivatives trading are a necessary useful attempt to modern commercial banks. By constructing empirical analysis model, this paper analysis the impact on performance and risk of commercial bank by financial derivatives, and found that it is beneficial to the performance of commercial bank. As we expected, due to the complexity of financial derivatives and high risk, the application of financial derivatives, inevitably increases the risk of commercial bank operations. Secondly, there need to have certain inherent conditions for the commercial banks to develop financial derivatives. By constructing empirical analysis model, this paper found that commercial banks need to have certain inherent to develop financial derivatives trading, such as asset size, income structure, loans and leases, asset liquidity, capital structure, etc. At the same time, different types of financial have some differences on condition requirements. Thirdly, China’s commercial banks already have the basic conditions for financial derivatives transactions from their own perspective now. By comparing the US’s top four banks and commercial banks, this paper found that China’s commercial banks has the fairly inherent conditions in asset size, non-performing loans ratio, liquidity and other aspects; The revenue structure is Similar with U.S. commercial banks in1970s. The capital adequacy rate of commercial banks in China is continuously improving in recent years. Fourthly, there are some differences in motivation, internal conditions, business environment and implementation of financial derivatives between China and U.S. Analysis the development path of financial derivatives of U.S. commercial bank, this paper found that China’s commercial banks are currently facing the similar environment with U.S. commercial banks in1970s, but specific to the different types of financial derivatives, there are many differences in the application environment for China’s commercial banks. Finally, these differences determine there will be another path for commercial banks of China to use financial derivatives. The using of financial derivatives by commercial banks should be combined with China’s national conditions, it will be a long way, and should take a different strategy with U.S. commercial banks.

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