Analysis on Financial Risk Management
Abstract: Under the background of international financial crisis, financial risk management has attracted more and more attention. This paper briefly expounds financial risk management from the aspects of classification, objectives, present situation and countermeasures.
Keywords: classification; Target; Current situation; Countermeasures
First, the connotation of risk management
Risk refers to the uncertainty of future results. Financial risk refers to any risk that may lead to financial losses of enterprises or institutions, and it is the uncertainty or possibility that economic subjects suffer losses in financial activities. Risk management involves all levels of activities within the organization, from the overall activities of the enterprise to the activities of various business departments, and then to individual business processes. , with the participation of risk management.
Financial risk management refers to a financial activity in which financial institutions identify, measure and analyze financial risks in the process of fund raising and operation, and effectively control and dispose of financial risks on this basis, so as to achieve maximum security at the lowest cost, that is, the most economical and reasonable method to avoid and resolve risks and obtain the best income.
Second, the classification of financial risk management
According to the object of financial risk, it includes bank credit risk management, foreign exchange risk management, securities investment risk management, futures investment risk management and so on. According to the causes of financial risk, there are objective financial risk management and subjective financial risk management. According to the scope of financial risks, there are macro-financial risk management and micro-financial risk management. According to the subject of financial risk, it includes national financial risk management and economic entity financial risk management.
Three. The goal of financial risk management
On the basis of identifying and quantitative finance risks, control possible financial risks, formulate disposal plans, prevent and reduce losses, and ensure the smooth progress of monetary fund raising and business activities. This is the main goal of financial risk management.
Four. Current situation of financial risk management in China
(A) the capital market information is opaque
If the information is not transparent enough, it will cause serious distortion of financial information and important information of listed companies, frequent insider trading, leading to market chaos, and may cause violent market shocks with the uncertainty of macro information.
(2) The capital market is imperfect and irregular, and there is a strong speculative atmosphere.
Because of the holding nature of non-circulating state-owned shares and legal person shares, they can easily control the supply and demand relationship in the stock market. Coupled with the lack of effective supervision in the market operation process, the speculative psychology of institutions or individuals is serious, which fundamentally determines that the price of the capital market is more arbitrary, so the sharp fluctuation of the whole market is inevitable.
(C) the deterioration of asset quality of financial institutions
According to relevant statistics, the non-performing assets of only four major banks in China are as high as 2 trillion yuan, and the proportion of non-performing loans is 20%. Although the growth trend of non-performing loans in some banks has slowed down in recent years (some have shown a downward trend), due to the long-term accumulation of financial repression, the proportion of non-performing loans in banks is still large and showing an upward trend year by year. Under the background of economic globalization, these non-performing loans may cause further panic and bring unimaginable turmoil to the already riddled system.
(D) The lagging development of financial products has restricted the development of the real economy.
At present, the variety of financial products in China is single, and the investment channels that investors can choose freely are narrow, so they can't fully enjoy all kinds of financial services provided by financial institutions, which seriously restricts the healthy and stable development of the real economy.
Five, several countermeasures to prevent financial risks
(1) Strengthen the financial supervision of government functional departments and endow the risk management departments with certain powers.
The regulatory authorities should actively encourage and support the innovation of banking financial institutions, improve the level of risk supervision, simplify the procedures and links of access approval under the premise of controlling risks, and further formulate and improve a series of laws and departmental rules, create a legal environment conducive to innovation and development, and promote new business to embark on a virtuous circle. Establish a risk management organization and management system that matches rights, responsibilities and benefits, endow certain powers and assume corresponding responsibilities, so as to obtain considerable benefits. Without a strict and powerful risk management organization, intermittent and one-sided management will lead to the risk managers unable to accurately understand and further control the overall risk. Therefore, the organizational structure of risk management should be complete and coherent to ensure that management is not omitted and can be implemented.
(2) Actively build the trading market, deepen the market-oriented reform of the trading mechanism, and create a good financial environment for financial innovation.
China's market subject is not mature enough, and the legal system is not perfect enough. We should actively explore and learn from international experience, build a trading market, deepen the market-oriented reform of trading mechanism, and gradually establish an all-round and efficient financial supervision system.
(3) Strengthen the supervision of bank assets and prepare sufficient deposits and reserves for financial institutions.
In recent years, the non-performing loan ratio of domestic banks has remained high. In recent years, the state has strengthened financial supervision, stripped off nuclear loans through collection, and the non-performing loan ratio has dropped significantly below 10%, laying a solid foundation for Chinese banks to integrate with international finance and creating better conditions for financial innovation. At present, although financial supervision has achieved certain results, state-owned banks are still burdened with heavy non-performing loans, which greatly hinders their integration with international finance and the realization of global economic development strategy. Therefore, the supervision of bank assets is a long-term task. Only effective supervision can reduce the non-performing loan ratio and prepare sufficient margin and reserve for financial institutions to realize the globalization strategy.
(d) Strengthen information technology risk management and formulate feasible investment strategies.
With the rapid development of information technology, information technology plays an increasingly important role in the development of banking industry, which puts forward higher requirements for the effectiveness and security of information technology means. This is also the key to the safe, stable and healthy development of the banking industry. At the same time, we should also strengthen the awareness of risk prevention. Use existing scientific and technological means to improve the ability of risk prevention. Financial institutions should set long-term investment goals and seek investment opportunities according to future income. Connect with international finance and create a good domestic and international environment. In short, under the financial crisis, the government and financial supervision departments should strengthen the supervision of government functional departments, deepen the reform of financial system, effectively supervise bank assets, especially understand the income and risk status of innovative products, improve risk prevention awareness and risk tolerance, and create a good domestic and international environment for China's financial industry.
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Financial Risk Management Part II Risk Management in Financial Innovation
Financial innovation is an important means to promote financial development and provides fresh blood for financial development. However, with the gradual opening of the financial industry, innovation activities are increasing day by day, which is followed by the highlight of financial risks. Based on the analysis of financial risks in financial innovation, this paper puts forward strategies to deal with financial risks, which lays a good theoretical foundation for future risk management research.
Keywords: financial innovation, financial risk and risk management
In the profit-oriented financial industry, financial innovation is an important tool to explore potential profits. However, due to the influence of the international financial crisis in recent years, the financial industry began to pay attention to the relationship between financial innovation and risk management. In order to ensure the sustainable effect of financial innovation, it is necessary to strengthen the risk management of financial innovation.
First, the concept of financial innovation
The problem of financial innovation was first put forward in the Theory of Economic Development by Austrian political economist joseph schumpete. Economists in China generally believe that financial innovation refers to the recombination of various elements in finance and the creation of new things through the innovation and change of various elements. From the previous research on financial innovation, we can find that the understanding of financial innovation is mainly concentrated in three levels: macro level, meso level and micro level. At the macro level, major changes in the historical development of the financial industry are regarded as financial innovation. Financial innovation is a true portrayal of the development history of the financial industry. Without financial innovation, there will be no sustainable development of the financial industry. The meso level refers to the process that the government or financial institutions create an efficient capital operation system with liquidity, safety and profitability by changing the financial intermediary function in order to transfer business risks, reduce operating costs and adapt to the economic environment. Micro-level refers to the innovation of financial instruments. The innovation of financial instruments can be mainly divided into credit innovation, risk transfer innovation, increasing liquidity innovation and equity creation innovation.
From this, it can be considered that financial innovation is a process of transforming the existing financial system and creating new financial instruments to obtain potential profits that cannot be obtained at present. It is a slow and continuous development process, driven by interests.
Second, the risk performance in the process of financial innovation
Any innovation activity will be accompanied by risks, and some of these risks are predictable and some are unpredictable. Financial innovation activities are bound to be unable to get rid of the shackles of financial risks. With the all-round development of financial innovation, financial risks will also be strengthened, followed by high risks of complexity and centralization. Its specific performance is as follows:
First of all, financial innovation leads to the strengthening of financial market risks. Financial innovation constantly promotes the development of the financial market, but it also brings great risks to the financial market. This kind of risk is a common risk faced by financial intermediaries, and both the capital market and the money market will be affected by financial risks. The risks faced by the capital market are mainly manifested in insufficient capital, small asset scale and outstanding business risks. The main risks faced by the money market are mainly manifested in the decline in profitability and the increase in the proportion of non-performing assets. Financial markets constantly win potential profits through innovation, but the defects of market basic conditions lead to the strengthening of innovation risks, which requires the continuous improvement of financial markets to make up for the hidden dangers brought by risks.
Secondly, financial innovation leads to increased risks in the financial system. The financial system is an organism composed of financial intermediaries and financial markets, and market funds move from surplus to shortage through the system. This system based on capital flow enables the holders of financial institutions to communicate closely and form a cooperative relationship with capital as the link, and this connection also leads to the direct spread of risks brought by a single financial innovation to other financial institutions within the system. This financial risk has the characteristics of rapid expansion, which directly affects the stability of the financial system.
Finally, financial innovation leads to the deepening of financial management risks. Financial innovation promotes the continuous competition among financial institutions, which leads financial institutions to pursue only high-yield behavior, which is bound to be accompanied by high risks, thus leading to the decline of credit value of financial institutions. This directly deepens the business risks of the financial industry, and once the potential risks of the business become a reality, it will definitely bring huge losses to financial institutions.
Third, measures to prevent financial innovation risks
Financial innovation not only brings potential profits to the financial industry, but also makes the financial industry face unprecedented risks. Therefore, financial intermediaries need to guard against financial risks while carrying out financial innovation.
With the continuous development of China's financial market, financial market risk has become the main risk faced by financial intermediaries. At present, the innovative financial instruments of financial institutions in China have low risk pricing and weak risk transfer ability. Therefore, it is an urgent problem for financial institutions and government supervision departments to improve the ability of market risk management and control. Driven by financial innovation, the financial supervision of government departments should also be improved. Financial supervision is a process in which the government inspects, organizes and coordinates financial institutions and financial markets through certain financial authorities and in accordance with laws, regulations and certain procedures in order to ensure the smooth and orderly progress of the macro-economy and realize the macro-economic goals. Government supervision departments should not only actively encourage financial institutions to innovate, standardize innovation behaviors and improve supervision level, but also improve relevant financial policies and regulations and establish a reasonable, orderly and sustainable financial innovation environment.
Internationalization of financial market is an inevitable trend of financial industry development, which will certainly strengthen international financial cooperation. Strengthening international financial cooperation can help us understand advanced international financial concepts, and sharing financial market information can provide valuable knowledge-based experience for financial innovation. Moreover, China's regulatory organizations can also participate in international regulatory organizations, formulate relevant rules for China's financial business with reference to international standards, and realize comprehensive financial cooperation.
Four. conclusion
Financial innovation is still in its infancy in China, and its growth needs the promotion of financial institutions, investors and government regulators. Government supervision departments should put public interests first, supervise financial intermediaries to inform financial investors of risk information, so as to protect the interests of financial investors. Government supervision departments should also work with financial institutions to fulfill the responsibility of educating financial investors and popularize financial knowledge to financial investors free of charge. Financial institutions should fully analyze the financial market while carrying out financial innovation, and the research and development of financial products should be based on the current financial market. Only in this way can we reduce financial risks more effectively in the process of financial innovation.
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[2] Zhang Xiaoqin, Li Feng. On Financial Innovation and Financial Risk Management [J]. Business Research, 2005(02).
[3] Que Xinhua, Chen,. On Financial Innovation and Financial Risk Management [J]. Guide to Economic Research, 2007 (07).
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