The Study Of Commercial Bank Credit Risk Transfer And Its Influence Of Contagion

For the risk management of the commercial banks, credit risk is one of the major risks in the banking industry. Current researches mainly focused on how to measure and control the credit risk of commercial banks. CRT products have developed rapidly because of the accumulation of commercial banks’ credit risk along with the bank lending expansion over the years. Those products are mainly asset securitization, credit derivatives and so on, packaging and selling subprime loans to transfer the credit risks. CRT tools were regarded as the root cause that triggered the crisis of the US subprime mortgage crisis in 2007. Thus facing many doubts, a comprehensive analysis of the advantages and disadvantages of commercial banks’ CRT tool has very important significance mainly includes the following aspects:Firstly, basic theory of CRT market. The CRT market had been though the appearing period, growing period, adjustment period and mature period. Transfer tools used in credit risk management has also became diversified along with the development of the market. They are asset securitization, credit insurance, credit derivatives and subprime bonds etc.Secondly, establish the CRT model based on Game Theory. We start with the analysis of each participant’s transaction motive under different credit risks and the correlations between participants on the premise of information asymmetry. Then according to the credit risks of each participants before and after the CRT, we establish the game model of CRT market to determine the Nash equilibrium of deposit & loan rates, bank earnings and social welfare before and after the introduction of CRT.Thirdly, analyze the impacts on banking industry based on the CRT of the US commercial banks. By using the quarterly data from 2002 to 2014 of 18 US commercial banks that have CRT tools, we establish a static panel model to analyze the impacts on bank loan size, assets returns and loan supervision level as well as the risks along with the CDO products. In the meantime, a dynamic panel model is also been established by bringing in lagged variables as a consideration of bank earnings, loan size, etc. that are affected by the previous transaction.Fourthly, analyze the causes of the US subprime mortgage crisis; demonstrate the influence ways of the CRT as well as the impacts on global financial stability based on the CRT of subprime mortgage crisis. According to the data of 10 Chinese and US commercial banks before and after the subprime mortgage crisis, we use Copula function to analyze the impact on China’s banking industry of the crisis.Fifthly, status and strategy study on CRT of China’s commercial banks. The credit market size of China’s commercial banks is huge and with larger bad assets accumulation. CRT tools can help ease and disperse the concentrated credit risks of the banks. However, there are many problems of China’s CRT market, such as less development of the credit enhancement and rating, lack of transaction tool innovation and measurement methods. Hence, we need to regulate related laws, strengthen internal control and use the CRT tools properly.Innovations of this paper mainly lie in the following aspect s:Firstly, establishing a game model of the CRT participants to analyze the transaction motive of the participants before and after the introducti on of CRT products. Thus to determinate the impacts of CRT tools on bank loan rates, bank earnings etc. and analyze the Nash equilibrium of the sizes of prime loans, medium loans & bad loans, loan rates as well as bank earnings before and after the introduction of CRT.Secondly, using static panel model to analyze the risks of banking industry before and after the introduction of CRT. We take CDO as the explanatory variable due to CDO is the major CRT tool used in commercial banks that is most representative. In view of the lag effect of the bank risks, we establish a dynamic panel model by using lag period of the explained variable and analyze the impacts of lag period on bank risks.Thirdly, analysis the influence of CRT on capital market and credit market during the subprime mortgage crisis as well as the influence of credit derivatives on global financial stability. Based on stock returns of commercial banks in China and the US, correlations has been analyzed via Copula model that demonstrated the impacts of the US commercial banks on China’s banking credit risk around 2007.