Abstract: As there is no mature securitization market, China’s commercial banks could not transfer risks through the means of securitization, but only through the traditional strategy of linear diversification. By adding some securitization factors to the“run model”and employing the“run edges”analytical method to have risks visualized, such a conclusion can be achieved that securitization can yield better results than linear risk diversification in most cases. When there is no confidence shock, the optimum choice based on minimizing banking risks is to exchange the senior tranche totally and to render the repayment of senior tranche equal to the level of deposits. However, this strategy will fail when there does exist a confidence shock; then, the optimal choice to avoid banking risks has to be altered.

Key words: securitization; run model; linear risk diversification; confidence shock