On October 30, Macro-Finance Salon (No. 168) was held online. This event, jointly organized by the International Monetary Institute (IMI) of Renmin University of China (RUC), the Department of Monetary Finance at the School of Finance of the RUC, and the FinTech Institute of the RUC, is the 11^th session of the series entitled “Finance Propels the Opening of the Fourteenth Five-Year Plan: Implementing the Principles of the Two Sessions” and the 24^th Fintech Open Class. Lan Guoyu, research fellow at the IMI, delivered a keynote speech entitled “Current Practice and Future Opportunities of Market Risk Management in Commercial Banks”. The keynote received comments from: Jin Yu, Party Secretary and Chairman of Bank of Shanghai; Chen Zhongyang, Professor at the School of Finance of the RUC, and member of the National Technical Committee for Standardization of Risk Management; Li Yucheng, Vice Mayor and Member of the Party Committee of Baise, Guangxi; and Zhang Danqi, Chairman of Guangzhou Finance Holdings Futures Co., Ltd. The event was moderated by Qu Qiang, assistant director and research fellow at the IMI.

Lan Guoyu first delivered his keynote speech entitled “Current Practice and Future Opportunities of Market Risk Management in Commercial Banks”. Lan started by introducing risk measurement and management approaches in China, and then expounded the FRTB-based approach and its latest implementation in the US, EU, Canada, and the UK. Based on current conditions of China and international experience, Lan put forward several suggestions on strengthening the awareness of financial security, focusing on autonomy and controllability, and supporting companies with specialized businesses, unique features, or new capabilities. The keynote comprised four parts: the history of risk measurement and management standards, the introduction of FRTB, the latest implementation of FRTB in the world, and some suggestions on Chinese risk measurement and management standards.

In the discussion and comment session, Chairman Jin Yu expressed his views on market risk management of commercial banks. He pointed out that researchers and banks should deal with market risks comprehensively. In recent years, commercial banks have been exposed to greater and greater market risks because of a variety of factors: under the structural adjustment of the financial system, direct financing funds were still mainly provided by commercial banks; the increasing complexity of financial products has given rise to intertwined risks; and RMB exchange rate fluctuated more due to its marketization reform. As a result, commercial banks paid more and more attention to market risks in overall risk management. At the same time, Basel III set new requirements for market risk management, including paying more attention to credit risk assessment, improving the management ability requirements for duration risks, and increasing the weight of capital with exchange rate risks.

Professor Chen Zhongyang then shared his understanding and observations of risk management from the perspective of measurement. Chen believed that risk measurement is the most important signature for modern risk management and that it contributes both directly and indirectly to risk monitoring. The direct benefit is that regulators can better calculate the risks of banks, and then determine the capital that banks should hold more accurately. In this way, the amount of capital can better reflect and cushion the risks. The indirect impact is that regulators can refer to measurement requirements and urge banks to improve their management procedures, systems, or even culture and strategies. However, the quantification of risks cannot solve all the issues by itself. Both quantitative and qualitative measures should be used to deal with market risks.

Vice Mayor Li Yucheng also shared his views on risk management of small and medium-sized financial institutions in rural areas. He pointed out that moral risksare the most important one with the most harmful consequences facing those institutions, followed by credit risks and market risks whose impacts have been on the rise. Li also said that risk management standards and tools should regulate those institutions in the following ways: Firstly, improve governance structure by identifying and dealing with the issue of insider control in rural cooperative institutions and the equity-for-debt issue brought about by shareholders’ demand for dividends; Secondly, prevent moral risks of managers as much as possible; Thirdly, identify and measure market risks in advance, especially the risks of collaterals. In terms of how to put newstandards and tools into practice, Li said that provincial credit unions should coordinate efforts to design and apply related models and allow packaged development of them. Meanwhile, regulatory authorities should work with experts, financial institutions, and local governments to carry out pilot projects before full scale implementation.

Last but not least, Chairman Zhang Danqi drew on his work experience to share his perspective. He said that setting risk-based minimum net capital requirements for financial institutions with businesses such as delegate trading, wealth management and lending is the only way to ensure that they can operate steadily and be responsible to their customers. At present, the four major assets in China, namely asset allocation, securities, commodities, and bonds, have become riskier. Therefore, reemphasizing risk management of financial institutions is vital. Futures is a tool designed for managing price risks and is becoming more and more important for financial institutions and the real economy. The futures marketallows commercial banks to hedge price risks in commodity trade. The market can also provide active risk management strategies for manufacturing enterprises, helping them avoid thinning profit margins when commodity price rises.