(December 29, 2004 Chinese Banking Regulatory Commission order 2004 10th release as of March 1, 2005) Chapter I General provisions article to strengthen the commercial bank's market risk management, in accordance with the People's Republic of China banking supervision law and the People's Republic of China commercial bank law and other relevant laws and regulations, these guidelines are formulated.     Article referred to in these guidelines refers to commercial banks in the People's Republic of China territory legally established commercial banks, including the Chinese-funded commercial banks, foreign-funded banks and Sino-foreign joint venture banks. Article referred to in these guidelines refers to market price for market risk (interest rates, exchange rates, stock prices and commodity prices) adverse changes in Bank outlets and off-balance sheet business risk of loss.     Market risk is in the Bank's trading and non-trading operations. Market risk can be divided into interest rate risk, exchange rate risk (including gold), and commodity price risk equity price risk, respectively, is due to interest rates, exchange rates, stock prices and the risk of adverse changes in commodity prices.     According to the different sources of interest rate risk can be divided into the repricing of risk, yield curve risk, basis risk and option risk.     Referred to in the preceding paragraph goods that can be traded in the secondary market of some kind, such as agricultural products, minerals (including oil) and precious metals (excluding gold). Article fourth of market risk management is to identify, measure, monitor and control the market risk of the whole process.     The objective of market risk management is through the market risk control in commercial banks within a reasonable range can withstand, realize the maximization of the risk-adjusted rate of return. Commercial banks should make the identification, measurement, monitoring and control all the market risk in the trading and non-trading operations to ensure that reasonable levels of market risk under the safe and sound operation.     Level of market risks shall be borne by commercial banks and its market risk management capacity and capital strength to match.     In order to ensure the effective implementation of risk management, commercial banks should be market risk identification, measurement, monitoring and control with a full line of strategic planning, business decisions and financial management and budget by combining. Fifth, China Banking Regulatory Commission (hereinafter referred to as the CBRC) according to law on commercial bank's market risk levels and exercise supervision over and management of market risk management system.     The CBRC should oblige commercial banks to effectively identify, measure, monitor and control the various types of market risk borne by the business. Chapter II market risk management sixth commercial banks should, in accordance with the requirements of this guideline, established with the Bank adapted to the nature, scale and complexity, comprehensive, reliable market risk management system.     Market risk management system consists of the following basic elements: (a) the Board of Directors and senior management and effective monitoring, (ii) improve the market risk management policies and procedures, (iii) improve market risk identification, measurement, monitoring and control procedures; (d) sound internal control and independent external audit (v) adequate market risk capital allocation mechanism.     Article seventh implemented the market risk management of commercial banks, should be duly taken into account market risk and other risk categories, such as credit risk, liquidity risk, operational risk, legal risk, reputation risk, risk of dependency, and coordinate with other categories of risk management risk management policies and procedures.     Section I monitoring article eighth of the Board of Directors and senior management of the Board and senior management of market risk management system should be effectively monitored. Commercial Bank's Board of Directors bear ultimate responsibility for monitoring of market risk management to ensure that commercial banks effectively identify, measure, monitor and control the various types of market risk borne by the business. Board is responsible for approval market risk management of strategy, and policy and program, determine Bank can bear of market risk level, urged senior management layer take necessary of measures recognition, and measurement, and monitoring and control market risk, and regularly get on market risk nature and level of report, monitoring and evaluation market risk management of comprehensive, and effectiveness and senior management layer in market risk management aspects of shoe vocational situation.     Board of Directors may authorize more than under the Special Committee in the discharge of their functions, authorized the Commission should submit a report to the Board of Directors on a regular basis.     Commercial Bank's senior management is responsible for the development and periodic review and monitoring of market risk management policies, procedures and specific rules about market risk and its management in a timely manner, and to ensure that banks have adequate human, material and appropriate organizational structure, management information systems and technology to effectively identify, measure, monitor and control the various types of market risk borne by the business.     Commercial Bank's Board and senior management should be on the Bank and market risk-related business, take all kinds of market risk and the corresponding risk identification, measurement and control methods have sufficient understanding.     Bank's Supervisory Board shall supervise Board of Directors and senior management in the area of market risk management duties. Nineth commercial banks should assign special departments responsible for market risk management. Responsible for market risk management departments should be clear responsibilities, and bear the risk of business sector remain relatively independent, to the Board of Directors and senior management with independent market risk reports, and competent to perform the market risk management responsibilities required resources, both human and material resources. Responsible for market risk management staff should have the relevant professional knowledge and skills, and fully understand the Bank's market risk-related business, undertaken by various types of market risks and the corresponding risk identification, measurement, control methods and technologies.     Commercial banks should ensure that its pay system to attract and retain qualified management of market risk. Commercial banks is responsible for market risk management of sector should perform following duties: (a) developed market risk management policy and program, submitted senior management layer and Board review approved; (ii) recognition, and measurement and monitoring market risk; (three) monitoring related business business sector and branch institutions on market risk limit of comply with situation, report Super limit situation; (four) design, and implementation after test and pressure test; (five) recognition, and assessment new products, and new business in the by contains of market risk,     Audit operations and risk management programs, (f) promptly to the Board of Directors and senior management with independent market risk reports; (VII) other related duties.     Business complexity and higher levels of market risk in commercial banks should establish a dedicated market risk management market risk management is responsible for the work. Article tenth business sectors to take market risks should be fully understood and included in the operating business decisions take full account of the various types of market risks, to maximize risk-adjusted rate of return.     Business sector should assume responsibility for taking market risks brought about by the loss. Section II market risk management policies and procedures section 11th commercial bank should be applied to the entire banking institutions, formal written risk management policies and procedures. Market risk management policies and procedures should be linked to the Bank's business nature, size, complexity and risk characteristics of adapted, with its overall business strategy, management, capital strength and can assume control of the overall level of risk is consistent and in accordance with the relevant requirements of the CBRC on market risk management. Market risk management policy and program of main content including: (a) can carried out of business, can trading or investment of financial tool, can take of investment, and hedge and risk ease strategy and method; (ii) commercial banks can bear of market risk level; (three) Division clear of market risk management organization structure, and permission structure and responsibility mechanism; (four) market risk of recognition, and measurement, and monitoring and program; (five) market risk of report system; (six) market risk management information system; (seven) market     Internal control risk; (h) the external audit of the management of market risks; (I) market risk capital allocation; (j) emergency programme for significant market risk.     Commercial banks should be based on the Bank's market risk and changes in external market conditions, timely revision and perfection of market risk management policies and procedures. Commercial Bank's market risk management policies and procedures and significant amendments should be approved by the Board of Directors. Senior management of banks should be associated with market risk management staff to clarify the Bank's market risk management policies and procedures.     With respect to market risk management staff should fully understand their rights and responsibilities related to the management and market risk. 12th commercial bank in new products and new business should be fully identified and assessed before including market risk, establish appropriate internal approval, operation and risk management procedures, and special committees of the Board or its authorized/approval.     Internal approval procedures for new products and new services should be included by the relevant departments, such as the business sector, responsible for market risk management departments, legal/compliance Department, financial accounting and settlement sectors on its operation and approval of audit and risk management procedures. Article 13th market risk management policies and procedures shall be consolidated on the basis of the application and should apply as an independent legal entity status of subsidiary bodies, including foreign affiliates.     However, commercial banks should be fully aware of the subsidiary bodies between the legal differences and obstacles of financial flows, and to adjust their risk management policies and procedures, in order to avoid legal differences and obstacles to the flows of funds resulting from the net position between the subsidiary bodies of the market risk is underestimated.     14th commercial banks should, according to the CBRC on relevant requirements of commercial banks ' capital adequacy ratio Management Division of bank accounts and trading accounts, according to the nature and characteristics of the Bank and trading accounts, take market risk identification, measurement, monitoring and control methods.     Commercial banks should be different categories of market risk (interest rate risk) and different types of business (such as derivatives) market risk set out more detailed and targeted risk management policies and procedures, and to maintain consistency between each other. Section III Market risk identification, measurement, monitoring and controlling the 15th commercial banks should each business and product in the decomposition and analysis of market risk factors, timely and accurate identification of all transactions and non-trading operations in the category and nature of market risk. 16th commercial banks should, according to the nature, scale and complexity of the Bank, bank accounts and different types of market risk in the trading book to choose appropriate, generally accepted measurement method, based on reasonable assumptions and parameters, all its market risk measurement.     Commercial banks should be calculated as accurately as possible to quantify the market risks and assess market risk is difficult to quantify. Commercial banks could take a different approach or model of measuring bank accounts and different types of market risk in the trading book. Market risk measurement methods, including gap analysis, duration analysis, foreign exchange exposure analysis, sensitivity analysis, scenario analysis, and use of the internal model to calculate value at risk, and so on.     Commercial banks should be fully aware of the advantages and limitations of different measurement methods for market risk, and other analytical tools, such as the stress test supplement.     Commercial banks should as far as possible on the measurement of bank accounts and market risks in the trading book (in particular interest rate risk) add across the line, so that the Board and senior management understand the Bank's overall risk level.     Bank's Board of Directors, senior management and market risk management personnel should be made aware of the Bank's market risk measurement methods, models and assumptions in order to accurately understand the market risk measurement results. 17th commercial bank should take measures to ensure that assumptions, parameters, data sources and measurement procedures for reasonableness and accuracy. Commercial bank market risk measurement systems should be assumed and parameters are regularly assessed and developed internal procedures to modify assumptions and parameters.     Significant assumptions and parameters should be made by senior management for approval. Article 18th trading accounts should be reassessed at least once daily at positions according to market value. Market capitalisation of revaluation shall be independent with the front desk-Tai, background, financial and accounting department or other relevant departments or staff. Pricing factors for revaluation should be independently of the reception of channels or through an independent verification. Front, middle, back, finance and accounting departments, responsible for market risk management Department for valuation methods and assumptions should be aligned as far as possible, in the case of not fully consistent, and use some proofreading, methods should be developed.     Lack of market value can be used to assess the market, banks should determine the selection of proxy data standards, method of access and fair prices. Article 19th banking regulator encourages business complexity and higher levels of market risk in commercial banks gradually developed and the use of internal models measuring value at risk, quantitative estimation of the level of market risk.     Value at risk is estimated at a certain holding period and a given confidence level, changes in interest rates, exchange rates and other market risk factors may be a fund positions, portfolio or institution of the potential loss. 20th using internal models of commercial banks should be based on the Bank's business scope and nature with reference to international standards, periodic review and adjustment model selection, technology (such as variance-the covariance method, historical simulation method and the mengte·kaluo method), and the model assumptions and parameters, and the establishment and implementation of the introduction of new models, the adjustment of existing models as well as test the accuracy of the model's internal policies and procedures.     Model tests shall be run independently of the model development and personnel in charge.     Model using internal models of commercial banks should be using fuse with the day-to-day risk management, the information provided by the internal model shall be part of the planning, monitoring and control of market risks portfolio an integral part of the process.     Using internal models of commercial bank should appropriate understanding and application of internal market risk model results, and fully aware of the limitations of the internal model, using stress tests and other non-statistical methods to supplement the internal models method.     Article 21st shall periodically conduct tests, market risk measurement or estimation of the model results are compared with actual results, and on the basis of market risk measurement methods or models to be adjusted and improved. 22nd commercial banks should establish a comprehensive, rigorous stress testing program, sudden small probability events on a regular basis, such as market price changes dramatically, or unexpected political and economic events may cause simulation and estimation of the potential losses, in extremely adverse circumstances to evaluate the Bank's loss of capacity.     Stress testing should include qualitative and quantitative analysis. Stress tests should choose risk scenarios that have major impact on the market, including significant losses have occurred in the history of stories and scenarios. Scenarios include the model assumptions and parameters are no longer applicable, market prices volatile conditions, inadequate market liquidity conditions, as well as the external environment changed, may lead to significant loss or risk to control situations.     Commercial banks should use the CBRC under stress scenarios and designed according to the nature of the business and market environment of the Bank stress testing stress scenarios. Commercial banks should be based on the results of the stress tests, have a significant impact on risk where emergency treatment plan and decide whether and how to limit management, capital allocation and market risk management policies and procedures must be improved.     Board of Directors and senior management should regularly stress tests designed and results are reviewed, and constantly improve the stress test program.     23rd commercial bank should impose limits on market risk management, development of all categories and levels of limits internal approval processes and procedures, according to the nature, size, complexity and risk tolerance limit set, reviewed and updated on a regular basis. Market risk limits, including trading, risk limits and stop-loss limits and so on, and according to regions, business sectors, portfolio, financial instruments and risk categories for decomposition. Commercial banks should be different according to the different risk limit control and limitation, establishment of different types and levels of complementary systems of reasonable limits of limits, effectively control market risk.     Total commercial bank market risk limits the kind of limits, structure should be determined by the Board of Directors for approval.     Commercial banks in design limit system Shi should consider following factors: (a) business nature, and scale and complex degree; (ii) commercial banks can bear of market risk level; (three) business business sector of past performance; (four) staff of professional level and experience; (five) pricing, and valuation and market risk measurement system; (six) pressure test results; (seven) internal control level; (eight) capital strength; (nine) external market of development changes situation. Limitation, commercial banks should the situation develop monitoring and handler. Limitation shall promptly report to the appropriate level of management. This level of management should be based on quota management of policies and procedures for deciding whether to grant this limitation can be maintained and how long. Unauthorised limits should be in accordance with the limit management policy and procedures for processing.     Management should limit according to decide whether to adjust the quota management system.     Commercial banks should ensure consistency between the different market risk limits, and coordinate market risk limit management and quota management of other risks such as liquidity risk limits. 24th commercial banks should provide the market risk measure, monitor and control the establishment of complete and reliable management information systems, and to take appropriate measures to ensure that data is accurate, reliable, timely and secure. Management information systems should be able to support the implementation of market risk measurement and its testing and stress testing, and monitoring market risk limits of compliance and market risk reports provide relevant content. Commercial banks should establish appropriate reconciliation procedures to ensure that the different departments and the consistency and completeness of product data, and ensure that the market risk measurement systems enter the exact prices and business data.     Commercial banks should be based on the need for management information system improvements and updates in a timely manner.     25th commercial banks should have a significant impact on risk where emergency response plan, including hedging, risk-reduction measures to reduce market risks such as exposure levels, and response to natural disasters, the banking system failures and other emergencies emergency or stand-by systems, procedures and measures to reduce banks ' potential losses and Bank reputation may be damaged.     Bank stress test results should be used as an important basis for developing market risk emergency programmes and emergency programmes are regularly reviewed and tested, constantly updated and improved emergency response programme. 26th report on market risks shall regularly and promptly to the Board of Directors, senior management and other management personnel. Different levels and types of reports should follow the rules of sending scope, procedures and frequencies. Report should including following all or part content: (a) by business, and sector, and area and risk category respectively statistics of market risk positions; (ii) by business, and sector, and area and risk category respectively measurement of market risk level; (three) on market risk positions and market risk level of structure analysis; (four) profit and loss situation; (five) market risk recognition, and measurement, and monitoring and control method and the program of change situation; (six) market risk management policy and program of comply with situation; (seven) market risk limit of comply with    Circumstances, including the limitation of treatment; (h) ex-post inspections and pressure tests of; (IX) internal and external audits, (10) the market risk capital allocation; (11) to the improvement of market risk management policy, procedures and suggestions for risk contingency plan (12) market risk management of other conditions. Market risk reports to the Board of directors usually include banks ' aggregate market risk positions, risk level, the profit and loss situation and the market risk management market risk limits and other policies and procedures for compliance, and so on.     To senior management and other managers of market risk reports usually include areas, business sector, portfolio, financial instruments and risk categories into more information and have a higher frequency of reporting. Fourth section of internal control and external audit article 27th shall, according to the CBRC on relevant requirements of commercial banks ' internal control, establish and improve the market risk management the internal control system, as an integral part of the overall internal control system of Bank.     Market risk management internal control shall be conducive to the promotion of effective business operations, provide reliable financial and regulatory reporting, prompting banks to strictly abide by relevant laws and administrative regulations, departmental rules and internal regulations, procedures to ensure the effective operation of the risk management system. 28th article in order to avoid potential conflicts of interest, commercial banks should ensure a clear division of responsibilities for departments, as well as related functions separate. Commercial Bank's market risk management functions and business functions should be seen to be independent.     Trading desk, backstage at the front desk should be strictly separated, official confirmation of transactions at the front desk personnel not involved in the transaction, account, revaluation and the clearing and payments payment; if necessary, set the Middle control mechanism. 29th commercial banks should avoid the pay system and incentive mechanism of interest conflicts and market risk management. The Board of Directors and senior management should avoid negative effects of pay system have encouraged excessive risk-taking investment to prevent performance assessment focus too much on short-term return on investment performance, regardless of the long-term investment risk.     Remuneration of staff responsible for market risk management should not be linked to the direct investment income. 30th of commercial bank internal audit departments shall regularly (at least once a year) for all components of market risk management system and process is accurate and reliable, full and independent review and evaluation of the effectiveness. Internal audit should be not only to the business sector, also responsible for market risk management departments. Internal audit reports should be submitted directly to the Board of Directors. Senior management of the Board of Directors shall supervise improvements against the issues identified by the internal audit programmes and take improvement measures.     Internal Audit Department shall monitor implementation of the improvement measures, and to submit a report to the Board of Directors. Commercial banks on market risk management system of internal audit should at least including following content: (a) market risk positions and risk level; (ii) market risk management system document of complete sex; (three) market risk management of organization structure, market risk management functions of independence, market risk management personnel of sufficient sex, and professional sex and shoe vocational situation; (four) market risk management by covers of risk category and range; (five) market risk management information system of complete sex, and reliability,     Market risk positions data of accuracy, and integrity, data source of consistency, and timeliness, and reliability and independence; (six) market risk management system by with parameter and assumed premise of rationality, and stability; (seven) market risk measurement method of appropriate sex and measurement results of accuracy; (eight) on market risk management policy and program of comply with situation; (nine) market risk limit management of effectiveness; (10) after test and pressure test system of effectiveness;     (11) the calculation of the market risk capital and internal configurations, (12) to major over CAP-and-trade, unauthorized trading and investigation of the accounts does not match.     Commercial banks in introducing risk levels have a major impact on the market of new products and new business, there are significant changes in the market risk management system or cases with serious shortcomings, market risk should be expanded and increased the scope of internal audit internal audit frequency.     Commercial Bank's internal audit staff shall have the relevant professional knowledge and skills, through appropriate training, to fully understand the market risk identification, measurement, monitoring, control methods and procedures.     Article 31st of commercial bank internal audit deficiencies, shall entrust the social intermediary institutions on the market nature of the risk, the level of market risk management system audits.     Banking regulators also encouraged other banks to entrust the social intermediary agencies on the market risk of character, level and periodic review and evaluation of market risk management system.     Fifth article 32nd market risk capital should be in accordance with the China Banking Regulatory Commission on the management of commercial banks ' capital adequacy ratio requirements, market exposure for the extraction of enough capital.     Banking regulator encourages business complexity and market risk with high levels of commercial use of risk-adjusted rate of return to capital allocation and performance assessment, Bank and business management departments at all levels to meet the market risk and the appropriate balance of profitability. Chapter III market risk supervision 33rd commercial banks should, in accordance with the provisions of the CBRC report and market risk for financial accounting, statistical and other reports.     Delegate to the intermediary organs to the market risk of character, level and market risk management system audits, should also be submitted to the external auditor's report.     Commercial Bank's market risk management policies and procedures shall be submitted to the CBRC for the record.     34th commercial bank should promptly report to the CBRC to the following matters: (a) over the heavy losses of the Bank's internal market risk limits set by, (ii) domestic and international financial markets lead to large fluctuations in the market's major events will impact on the Bank's market risk and its management and (iii) of trading violations, and (iv) other major contingencies.     Commercial bank market risk system of reporting on important matters should be developed, and report to the CBRC for the record.     35th article silver prison will should regularly on commercial banks of market risk management status for site check, check of main content has: (a) Board and senior management layer in market risk management in the of shoe vocational situation; (ii) market risk management policy and program of perfect sex and implementation situation; (three) market risk recognition, and measurement, and monitoring and control of effectiveness; (four) market risk management system by with assumed premise and parameter of rationality, and stability; (five) market risk management information system of effectiveness;     (Six) market risk limit management of effectiveness; (seven) market risk internal control of effectiveness; (eight) Bank internal market risk report of independence, and accuracy, and reliability, and to silver prison will submitted of and market risk about of report, and report of authenticity and accuracy; (nine) market risk capital of sufficient sex; (10) is responsible for market risk management staff of expertise, and skills and shoe vocational situation; (11) market risk management of other situation. Article 36th the CBRC found in regulatory issues related to the market risk management, commercial banks should be submitted corrective action within a specified time frame and to take corrective action.     The CBRC recommending against the market risk management system in commercial banks, including the adjustment of market risk measurement methods, models, assumptions and parameters, such as recommendations. For in provides of time within failed to effective take rectification measures or market risk management system exists serious defects of commercial banks, silver prison will right to take following measures: (a) requirements commercial banks increased submitted market risk report of times; (ii) requirements commercial banks provides additional related information; (three) requirements commercial banks through adjustment assets combination, way appropriate reduced market risk level; (four) People's Republic of China banking supervision management method and other legal, and     Administrative regulations and Department rules and regulations of the relevant measures. 37th article commercial banks should according to silver prison will on information disclosure of about provides, disclosure its market risk status of quantitative and qualitative information, disclosure of information should at least including following content: (a) by bear market risk of category, and general market risk level and the different category market risk of risk positions and risk level; (ii) about market of sensitivity analysis, as interest rate, and exchange rate changes on Bank of returns, and economic value or financial status of effect; (three) market risk management of policy and program, Including risk management of general concept, and policy, and program and method, risk management of organization structure, market risk measurement method and by using of parameter and assumed premise, after test and pressure test situation, market risk of control method,; (four) market risk capital status; (five) used internal model of commercial banks should disclosure by calculation of market risk category and range, calculation of general market risk level and the different category of market risk level, report period within highest, and minimum, and average and final of risk value,     The model used, the parameters and assumptions, after testing and stress testing and test the accuracy of the model's internal procedures and other information.     The fourth chapter by-laws article 38th of policy banks, financial asset management companies, urban credit cooperatives, rural credit cooperatives, trust investment companies, financial companies, financial leasing companies, auto finance companies, postal savings institutions other financial institutions, such as the reference implementation of this guideline.     39th article does not have a Board of Directors of State-owned commercial banks, should be run by its decision-making bodies to fulfil this duty relating to market risk management guidelines of the Board of Directors.     40th People's Republic of China established a foreign bank branch shall be in accordance with its head office in the territory development of market risk management policies and procedures for market risk management reports submitted regularly to the head office and in accordance with the provisions of the CBRC report market risk related reports.     41st article of the guidelines of the appendix to this guideline describes nouns involved.     42nd State-owned commercial banks and joint-stock commercial banks should be made before the end of 2007 at the latest, city commercial banks and other commercial banks should be made before the end of 2008 at the latest meet the guideline requirements.     Article 43rd interpret these guidelines by the CBRC. 44th These guidelines come into force on March 1, 2005.     Appendix: the Guide to commercial bank's market risk management for an explanation of terms, repricing of risk (Repricing Risk) risk, yield curve (Yield Curve Risk), baseline risk (Basis Risk), the optionality (Optionality) according to the different sources of interest rate risk can be divided into the repricing of risk, yield curve risk, basis risk and option risk. (A) the repricing of risk (Repricing Risk) risk repricing risk, also known as maturity mismatches, are the most important and most common form of interest rate risk, from the Bank's assets, liabilities and off-balance sheet business maturity (fixed rate) or repricing periods (floating rate) the differences that exist. Asymmetry of this repricing of banks ' earnings or intrinsic economic value will change as the interest rate changes.     For example, if the banks in short-term deposits as a funding source of long-term fixed-rate loans when interest rates rise, loan interest income is fixed, while the deposit interest expenses would rise as interest rates go up, so that the Bank's future earnings and economic value. (B) the risk of yield curves (Yield Curve Risk) asymmetry of repricing will also yield curve slope, changes in shape, that is, non-parallel yield curve moves, proceeds or adversely affect the intrinsic economic value of the Bank, thus forming the yield curve risk, also known as the term structure of interest rate change risk.     For example, if the five-year government bonds of short positions for 10-year government bonds to hedge long positions when the steepening of the yield curve, while these arrangements have been to maintain the parallel movement of the yield curve, but the 10-year bond the economic value of long position will still fall. (C) baseline risk (Basis Risk) baseline risk is called risk interest rate pricing basis, are another important source of interest rate risk. Interest income and interest expenses are based on the benchmark interest rate changes are not consistent with the case, although the assets, liabilities and off-balance sheet business of repricing features are similar, but because of its cash flow and earnings differentials have changed, also on banks ' earnings or adversely affect the intrinsic economic value. For example, a bank may year loan with a one-year deposits as a source of financing, loans in accordance with United States Treasury Bill interest rate repricing once a month, and deposits in accordance with the London interbank market rate prices once a month.     While the one-year deposits as a source of one-year loans, due to interest rate sensitive liabilities and interest rate sensitive assets are repriced terms all the same repricing risk does not exist, but because its benchmark interest rate of change may not be entirely relevant, changes are not synchronized, there will still be the Bank faces due to changes in benchmark interest rate spreads and the baseline risk. (D) the optionality (Optionality) optionality is a more significant interest rate risk, comes from the Bank's assets, liabilities and off-balance sheet operations implied by option. In General, an option that gives its holder to buy, sell, or changed in some way of a financial instrument or financial contract cash flow right, not an obligation. Options can be a separate financial instrument, such as field (Exchange) trading options and over-the-counter options contracts can also be implied from the standardization of other financial instruments, such as bonds or deposits in advance payment, the early repayment of the loan and other optional provisions. In General, options and option terms are favourable to the buyer and the seller is bad, therefore, such option tool because of its asymmetric characteristics and pose risks to the seller to pay. For example, if the interest rate changes beneficial to depositors or borrowers, savers may choose to reschedule the deposit, the borrower may choose to re-schedule the loan so as to adversely affect the Bank.     Now, more and more varieties of options have a high leverage effect, will further increase the option positions also may have an adverse impact on banks ' financial health. Second, the gap analysis (Gap Analysis) gap analysis is measuring the impact of interest rate changes on bank earnings in the period method. In particular, it is all the banks interest-bearing assets repricing and interest liabilities in accordance with the term into different time periods (such as 1 month 1-3 months, 3 months ~1 years, 1-5, for more than 5 years). In each time period, the interest rate sensitive assets less interest rate sensitive liabilities, plus off-balance sheet business position, you get the repricing periods of "holes". The gap times assuming that changes in interest rates, which reached this overall effect of changes in interest rate movements on net interest income. When a period of liability than asset (including off-balance sheet business positions), the negative gap arises, namely, liability sensitive gap, when market interest rates rise will lower the Bank's net interest income. In contrast, when a period of assets (including off-balance sheet business positions) than debt, had a gap, known as asset-sensitive gap, decline in market interest rates will lower the Bank's net interest income.     Gap analysis assumes that changes in interest rates can be determined in several ways, such as based on historical experience, according to the Bank's management's judgements and simulate potential future changes in interest rates, and so on. Gap analysis is a method of sensitivity analysis on interest rate changes, was banking earlier interest rate risk measurement methods. Because of its simple, clear and easy to understand, is still widely used. However, the gap analysis also has some limitations. First, the gap analysis assumes that all positions within the same time period expires or repricing time are the same, so ignore the different positions within the same period expiration time or difference of interest rate repricing period. Total extent of increase over the same time period, the higher accuracy of the measurement results, the greater the impact. Second, repricing gap analysis considered only by depending on the term of interest rate risk, namely re-pricing of risk, are not considered as interest rates change, due to different rates of various financial products base rate adjustments arising from interest rate risk, basis risk. Meanwhile, gap analysis does not take into account the changes in the interest rate environment and cause changes in the timing of payments, which ignored and option-related positions in the income differences in sensitivity. Third, non-interest income and expense are important sources of bank earnings in the period, but most of the gap analysis does not reflect changes in interest rates on non-interest income and cost impact. Finally, gap analysis measuring the impact of interest rate changes on bank earnings in the current period, does not consider the impact of interest rate changes on Bank economic value, so can only reflect the short-term impact of interest rate changes.     Therefore, the gap analysis is only a junior, a rough measurement of interest rate risk. Three analysis, duration (Duration Analysis) also known as duration analysis or duration analysis the term elastic analysis, is one way to measure the effects of interest rate changes on Bank economic value. In particular, the gaps in each period is to give your sensitivity weight get weighted gap, then the weighted gap totals of all time, to estimate a given small (usually less than 1%) changes in interest rates could impact on the economic value of banks (with changes in economic values expressed as a percentage). Weight of sensitivity of various periods are usually the assumed interest rate multiplied by the position assumes that the average duration of the period to be sure. Generally speaking, the financial instrument's maturity date or longer from the next repricing purposes, and in a smaller amount to be paid before the due date, then the higher the absolute value of a long period, indicating that changes in interest rates will have a greater impact on the economic value of the Bank.     Duration analysis is a method of sensitivity analysis on interest rate changes. Banks can be more than the standard duration analysis of evolution, for example, not using the time allocated to each position using average duration of practice, but is by calculating each of the assets, liabilities and off-balance sheet positions of precise duration to measure the impact of changes in market interest rates, eliminating the added positions/cash flow may cause errors.     In addition, banks can also use effective duration analysis, that is, different times using different weights, according to interest rate changes in the specific cases, fictitious financial instruments the market value of the real percentage change, to design risk-weighted in each period, so as to better reflect the significant changes in market interest rates as a result of price variation. Compared with gap analysis, duration analysis is a more advanced method of measurement of interest rate risk. Gap analysis focused on measuring effects of interest rate changes on bank short-term profits, and duration analysis is to measure the impact of interest rate risk on the economic value of a Bank, which estimates changes in interest rates for all positions of the potential impact of present value of future cash flows, so as to be able to assess the long-term impact of interest rate changes, to more accurately estimate the interest rate risk on Bank effects. However, duration analysis still has some limitations. First, if the sensitivity weight is calculated for each period using the average duration, which adopts the standard duration analysis, duration analysis can only reflect the repricing of risk, does not reflect the benchmark risk as a result of interest rate and the times of payment as a result of the different positions of the real interest rate sensitivity, nor reflect optionality.     Second, for the sharp changes in interest rates (more than 1%), due to the position of price changes and interest rate movements cannot be approximated as a linear relationship, and duration analysis results will no longer be accurate.    Four, foreign exchange exposure analysis (Foreign Currency Exposure Analysis) Analysis of foreign exchange exposure is measuring the impact of exchange rate changes on bank earnings in the period method. Foreign exchange exposure comes mainly from currency mismatches in banks inside and outside the business. When in a certain time period, Bank a is inconsistent currency's long positions and short positions, the difference of formed foreign exchange exposure. In the case of foreign exchange exposure, exchange rate changes might give the Bank's current earnings or loss of economic value, to form the exchange rate risk. At the time of exposure analysis, Bank foreign exchange exposure of the single currency should be analysed, as well as the total currency exposure into the reporting currency and the net formed by the total of foreign exchange exposure. Foreign exchange exposure to a single currency, banks should analyse the spot foreign exchange exposures, forward foreign exchange exposure and the immediate and long-term increase of total net foreign exchange exposure. Banks should also be on trading and non-trading foreign exchange exposure of the formation of a distinction. Currency exposure arising from the exchange-rate risk, banks often hedge and limit management control. Foreign exchange exposure limits including the single currency's foreign exchange exposure limits and limit total foreign exchange exposures. Currency exposure analysis of the banking sector earlier exchange rate risk measurement method has the advantage of calculation is simple, clear and easy to understand.     However, foreign exchange exposure also has some limitations, mostly ignored the relevance of changes in currency exchange rates, to reveal the relevance of changes in currency exchange rates brought about by the currency risk. Five, sensitivity analysis (Sensitivity Analysis) sensitivity analysis refers to the premise of maintaining other conditions do not change, single market risk factors (interest rates, exchange rates, stock prices and commodity prices) changes may have on financial instrument or portfolio impact of profit or economic value. For example, the gap analysis can be used to measure current earnings sensitivity to interest rate changes; duration analysis can be used to measure the economic value of Bank's sensitivity to changes in interest rates. Basel Committee in 2004 released of interest rate risk management and regulatory principles in the, requirements Bank assessment standard interest rate impact (as interest rate rose or declined 200 a basis points) on Bank economic value of effect, is a interest rate sensitivity analysis method, purpose is makes regulatory authorities can according to standard interest rate impact of assessment results, evaluation Bank of internal measurement system whether can full reflect its actual interest rate risk level and capital sufficient degree, and on different institutions by bear of interest rate risk for compared.     If the standard rate under the impact, economic value of banks fell by more than one tier, Tier II and 20%, regulators must be careful about their capital adequacy and, if necessary, should also require the banks to reduce the level of risk and/or an increase in capital. Sensitivity analysis calculations are simple and easy to understand, has been widely used in the analysis of market risk. But sensitivity analysis also has some limitations, mainly in the more complex financial instruments or portfolio, unable to measure their profit or economic value of relative risk factors of non-linear changes.     Therefore, when you use sensitivity analysis to its scope and, if necessary, supplemented by other market risk analysis methods. Six, situational analysis (Scenario Analysis) differs from the sensitivity analysis of single factor analysis, scenario analysis is a multivariate analysis methods, combined with the probability of having a set of possible scenarios, when we study the influence of many factors may impact. Scenario analysis to take into consideration various positions during the relationship and interactions. Usually used in scenario analysis, including baseline scenarios, the best and worst-case scenarios. Stories can be controlled (for example directly using the historical scene), is also available from statistical analysis of market risk factor changes in the historical data obtained or described by running changes in market risk factors in a particular situation of random processes.     If banks can analyze interest rates, exchange rates and changes could impact on their level of market risk, can also be analyzed in history, there were political or financial crisis, economic events, as well as some hypothetical event, it risks the possibility of changes in the market. Seven, the value-at-risk (Value at Risk,VaR) value-at-risk refers to a certain holding period and to a given level of confidence, interest rates, exchange rates and other market risk factors of a fund when the change positions, portfolio or institution of the potential loss. For example, in the holding period is 1 day, confidence level of 99% case, if the value of the calculated risk for $ 10,000, it means that the Bank's portfolio in the probability of losses at 99% 1 day does not exceed $ 10,000. Value at risk is usually from within the Bank's market risk management model to estimate quantitatively. Current value-at-risk models has three main technology: variance-the covariance method (Vari-ance-Covariance Method), historical simulation (Historical Simulation Method) and mengte·kaluo methods (Monte Carlo Simulation Method).     Now, the main indicators of value at risk has become a measure of market risk, is the internal model is used to calculate market risk capital requirements of banks the main basis. Internal market risk model of technical methods, assumptions and parameters settings can have a variety of choices, at the time of the internal risk management, banks are usually based on the Bank's development strategy, risk management and operational complexity of set. For the calculation of the market risk regulatory capital Basel Committee made some uniform provisions and most of the regulatory authority, aims to make the market risk regulatory capital calculation by different banks with consistency and comparability, while from a prudential point of view, on a number of parameters, such as the holding period set out in relatively conservative. Market risk Committee, in 1996 the Basel Capital Accord in the supplementary regulations of internal market risk model makes the following quantitative requirements: confidence level with 99% one-tailed confidence interval of the holding for a period of 10 business days market risk factor price the historical observation period of at least one year; data is updated at least every three months. However, in terms of modeling technology, the Basel Committee and the national regulatory authorities are not required, allows banks to choose any one of the three commonly used models. Even VaR quantitative parameter is set to the model provisions was limited to follow in calculating the market risk regulatory capital, internal risk management of commercial banks can use a different parameter value. Such as the Basel Committee call for the calculation of regulatory capital should be used 99% the confidence level, and many banks are used for internal management 95%, 97.5% confidence level. In addition, taking into account the internal market risk model itself has some flaws, the Basel Committee requirements when calculating the market risk regulatory capital, calculated risk values must be multiplied by the multiplier factor (multiplication factor), came to the capital by an amount sufficient to withstand adverse changes in the market may cause losses for banks.     Multiplier factor by national regulatory authorities in accordance with their assessment on the quality of banks ' risk management systems to determine, shall not be less than the value set by the Basel Committee 3. At present, the internal market risk model has been the main measure of market risk. And gap analysis, and long period analysis, traditional of market risk measurement method compared, market risk internal model of main advantages is can will different business, and different category of market risk with a exact of numerical (VaR value) said out, is a can in different business and risk category Zhijian for compared and summary of market risk measurement method, and will hidden risk dominant of zhihou, conducive to for risk of monitoring, and management and control. Also, because of the value-at-risk with a high degree of generality, simplicity, but also for understanding market risks of the Bank's Board of Directors and senior management level. However, the internal market risk model also has some limitations. First, the internal market risk model to calculate the level of risk high level, does not reflect the composition of the portfolio and its sensitivity to price volatility, limited effectiveness of specific risk management process, need to be complemented by sensitivity analysis, scenario analysis and other non-statistical methods. Second, the method does not cover the internal market risk model price volatility may cause great losses to the Bank's sudden small probability events, stress tests are needed to complement it. Third, most internal market risk model can only measure the market risk in the trading business, not the measurement of market risk in the trading business.     Therefore, the Bank using internal market risk model should be fully aware of its limitations, proper understanding and use of the model results. Eight, after the test (Back Testing) test is the market risk measurement method or model result is compared with the actual profit and loss, measurement method or model to test the accuracy, reliability, and to adjust and improve the measurement method or model a method. If estimates results and actual results approximate, is showed that the risk measurement method or model of accuracy and reliability high; if both gap larger, is showed that the risk measurement method or model of accuracy and reliability lower, or is after test of assumed premise exists problem; between this two species situation Zhijian of test results, is hinted the risk measurement method or model exists problem, but conclusion not determine. At present, after the test as a test of market risk measurement methods or models as a means in the process of development.     Different banks using testing methods and the interpretation of the test results criteria are different. In 1996, the Commission of the Basel Capital Accord supplementary provisions require the use of internal models for market risk market risk capital Bank to test the model, to test and improve the accuracy and reliability of the model. Regulatory authorities should be based on test results to determine whether setting an additional factor (plus factor) to increase regulatory capital requirements for market risk. Additional factor set at its lowest multiplier factor (the Basel Committee is 3), between the values in the 0~1.     If authorities post hoc tests with satisfactory results of the model, model and the requirements of the regulatory authority to specify other quantitative and qualitative criteria, additional factor can be set to 0, or can be set to a number between 0~1, that is, by increasing the value of VaR multiplier factor, for internal defects of the model Bank, higher regulatory capital requirements.    Nine, stress test (Stress Testing) Bank not only should used various market risk measurement method on in general market situation Xia by bear of market risk for analysis, also should through pressure test to estimates burst of small probability event, extreme adverse situation may on its caused of potential loss, as in interest rate, and exchange rate, and stock price, market risk elements occurred dramatic changes, and domestic production total sharply declined, and occurred accident of political and economic event or several case while occurred of situation Xia, Bank may suffered of loss.     Stress tests designed to assess banks ' losses in extremely adverse circumstances capacity, mainly by means of sensitivity analyses and scenario analysis for simulation and estimation. In the application of sensitivity analysis method for stress testing, issues that need to be answered, such as: the impact of exchange rate impact on the Bank's net foreign exchange position, interest rate shocks on economic value or earnings impact of a Bank and so on. Using scenario analysis method for stress testing, you should select can have maximum impact on market risk scenarios, including the history of major loss situation (such as the 1997 Asian financial crisis) and scenarios. Scenarios and model assumptions and parameters are no longer applicable, market prices volatile conditions, inadequate market liquidity conditions, as well as the external environment changed, may lead to significant loss or risk to control situations. These scenes or prescribed by the regulatory authority, or designed by portfolio of commercial banks according to their characteristics.     When the design stress scenarios, we must consider changes in market risk factors and micro-factors, but also take into account a country's economic structure and macro-level factors such as changes in macroeconomic policy. Ten accounts, bank accounts and transactions (Banking Book and Trading Book) tables inside and outside of the bank assets can be divided into a bank account and trading account assets in two categories. In 2004, the Commission of the new Basel Capital agreement on its 1996 capital market risk trading accounts defined in the supplementary regulations were modified, revised definitions for: trading account is a record of a Bank for trading purposes or transaction account risk compared with some other projects may be freely traded financial instruments and commodity positions. Positions must be entered in the trading account in the transaction is not subject to any restrictions or be able to completely avoid the risk. Moreover, the Bank should be an accurate valuation of trading book positions often and active management of the portfolio. Positions are held for trading purposes, purposefully changed hands in order to sell, in the short term from actual or expected short-term price volatility arbitrage profits or locking in (lock in arbitrage profits) positions, such as proprietary position, agency trade positions and market trading (market making) forming positions. Remember into trading account of positions should meet following basic requirements: a is has by senior management layer approved of written of positions/financial tool and investment combination of trading strategy (including holds term); II is has clear of positions management policy and program; three is has clear of monitoring positions and bank trading strategy whether consistent of policy and program, including monitoring trading scale and trading account of positions balance. Whether having a trade purpose identified at the beginning of trading, generally cannot be changed thereafter. Corresponding to the trading account, the Bank's other businesses into banking account, deposit and loan businesses is the most typical. Items in the trading account is usually shown at market prices (mark-to-market), when there is a lack of available reference market, according to the model (mark-to-model). Based pricing refers to other relevant data obtained from a market input model calculations or calculate the value of trading positions.     Items in the bank accounts are usually historical cost. Commercial banks should develop internal policies and procedures regarding the classification of accounts, should include: the definition of trading, financial instruments should be included in the trading accounts, transactions and non-trading post and the strict separation of duties, or portfolio of financial instruments trading strategies, trading positions in management policies and procedures, monitoring procedures for trading positions and trading strategies are consistent. Meanwhile, the Bank shall keep complete records of transactions and Accounts Division, for queries, and accept the supervision and inspection of internal and external auditors and supervisory authorities.     Meanwhile, commercial banks should be based on the nature and characteristics of the Bank and trading accounts, take market risk identification, measurement, monitoring and control methods. In addition, the Division of bank accounts and trading accounts, are the basis for accurate calculation of the market risk regulatory capital. In January 1996, the Commission issued by the Basel Capital Accord supplementary provisions on market risk, as well as most countries make the capital accord to incorporate market risks into the scope of capital requirements, but does not cover all market risk, is included in trading account interest rates and equity price risk as well as in banking and trading in the accounts of the exchange rate and commodity price risks. Therefore, if classified accounts properly, can affect the accuracy of the market risk capital requirements; if a Bank between the two accounts adjusted positions, you will be required to adjust the calculated capital adequacy regulatory arbitrage opportunities offered. At present, the market risk regulatory capital requirements for banking supervisory authorities of the countries/regions have established bank accounts, trading accounts division principle, and requires commercial banks to develop internal policies and procedures, detailed account standards and procedures.     Regulatory authorities periodically to divide the account of bank checks, checks focused on its internal accounts division of policy, whether the program meets the requirements of regulatory authorities, compliance with the Accounts Division of the internal policies and procedures, to reduce regulatory capital requirements and artificially adjusting positions between the two accounts, and so on. Third, limits (Limits) management implemented the market risk management of commercial banks, should ensure that the bear market exposure within a reasonable range, make the level of market risk and its risk management and capital matching, limits market risk management is to be an important means of control. Banks should be set according to market risk measurement methods used by the market risk limits. Market risk limits that can be assigned to different areas, business units and traders, and by decomposing portfolio, financial instruments and risk categories. Bank is responsible for market risk management departments shall monitor compliance with the market risk limits and limitation reports to management in a timely manner.     Common market risk limits, including trading, risk limits and stop-loss limits and so on. Transaction limits (Limits on Net and Gross Positions) refers to the total net trading position or positions set limits. Total position limits on specific trading tools of long positions or short position limit net position limit on long positions and short positions to limit NET netting.     In practice, banks often use both transaction limit. Exposure limit refers to, with some measure of market risk measurement by setting limits, such as the measured value at risk limits set by the internal model (Value-at-Risk Limits) and position setting options on options positions limits (Limits on Options Positions).     Option sex positions limit is refers to on reflect option value of sensitivity parameter set of limit, usually including: on measure option value on benchmark assets price changes rate of Delta, and measure Delta on benchmark assets price changes rate of Gamma, and measure option value on market expected of benchmark assets price fluctuations sex of sensitive degrees of Ve-ga, and measure option near due day Shi value changes of Theta and measure option value on short-term interest rate changes rate of Rho set of limit. Stop-loss limit (Stop-Loss Limits) is the maximum allowable amount. Usually, when cumulative losses of a position at or near the stop-loss limit, it is necessary to hedge the position or liquidate it.     Typical stop-loss limit with retrospective effect, that the stop-loss limit applies to a day, a week or within one month, cumulative losses over time. 12, according to the risk-adjusted rate of return (the Risk-Adjusted Rate of Re-turn) for a long time, is generally used to measure the profitability return on equity (ROE) and return on assets (ROA) indicators, the defect is only think about the book profits at the expense of the enterprise has not yet been fully considered risk factors. Banks are operating the special goods the enterprise of high risk, as measured by the index does not take into account the risk factors of its profitability, has significant limitations. At present, the trends of international banking is based on the risk-adjusted rate of return, comprehensive assessment of bank profitability and risk management capabilities. According to the rate of return on risk-adjusted profit overcomes traditional performance appraisal goals did not fully reflect the cost of defects, directly linked to the benefits and risks of the banks, the combination reflects business development and risk management of inner unity, unified to achieve business objectives and performance appraisal.     Use of risk-adjusted yields, to establish good incentives within banks, radically change banks ignore risks, the mode of operation of the blind pursuit of profit, incentive banks fully understand the risk and consciously identify, measure, monitor and control these risks, so on the premise of prudent business expanding, creating profits. On the basis of risk-adjusted rate of return, widely accepted and commonly used are based on the risk-adjusted return on capital (Risk-Adjusted Return on Cap-ital,RAROC). According to the risk-adjusted return on capital refers to the expected losses (Expected Loss,EL) and with the economic capital (Capital at Risk,CaR) loss for measurement (Unexpected Loss,UL)-adjusted yields, calculated as follows: risk-adjusted rate of return, such as RAROC stressed that banks ' risk costs. In RAROC calculation formula of molecular items in the, risk brings of expected loss was quantitative for Dang period cost, directly on Dang period profit for deductions, to this measure by risk adjustment Hou of returns; in denominator items in the, is to economic capital, or non-expected loss instead of traditional ROE index in the of owner interests, meaning that Bank should for not is expected to of risk extraction corresponding of economic capital.    The entire formula is a measure of the efficiency of economic capital. At present, RAROC risk-adjusted rate of return has been widely used in advanced international banks, in its internal operations and management at all levels plays an important role. Individual business level, RAROC can be used to measure whether the risks and benefits of a business matching, and decide whether to carry out the transaction for the Bank, as well as how to provide a basis for pricing. At the portfolio level, taking into account the business risks and assets of banks after the combined effect can be measured according to the RAROC portfolio risk and return match in time to the RAROC indicators showed negative trends of portfolio processes, make room for the benefit of better business. Overall at the Bank level, RAROC for goal setting, business decisions, capital allocation and performance assessment. Senior management layer in determine Bank can bear of general risk level, that risk preference zhihou, calculation Bank need of general economic capital, to this evaluation itself of capital sufficient status; will economic capital in various risk, and all business sector and various business Zhijian for distribution (capital configuration), to effective control Bank of general risk, and through distribution economic capital optimization resources configuration; while, will shareholders returns requirements into for on full line, and the business sector and all business line of business target, for performance assessment, Enable banks to achieve acceptable risk levels to maximize, and ultimately, maximize shareholder value.