Study Of The Risk Early Warning Of The Economic Prosperity Of Commercial Banks

Since the second half of 2007, the world financial markets are suffering from the worst crisis since the Great Depression in 1930s,bringing significant impact on the global financial markets and financial regulation. Regulatory authorities recognize that macro-financial risk is essentially an accumulation process from micro-financial risks,and, ultimately, will result to the outbreak。For prevention and control of financial risks,it must be to pay attention to early-warning and prevention of micro-risks. To achieve this goal, the regulatory authorities need to adopt an early warning tool to enhance the monitoring of predictability and rationality of resource allocation. In this paper, the author uses the qualitative analysis and mathematical statistics to construct commercial bank risk early warning model while setting the risks of commercial banks to be dependent variable and financial ratios to be independent variables. Through research it will achieve the following main objectives:One is to establish the concept of bank early-warning target, and the second is to distinguish high-risk and low risk banks.Third,the author designs and constructs risk system of early-warning indicator as well as significant explanatory variable key indicators.Fourth,the author establishes an early warning model of commercial bank risk, and provides a reference framework for strengthening supervision.In order to solve the problem mentioned above, this paper discusses and sets the objectives of early warning. Only after set early-warning goals, early-warning tools and indicators can be determined.And the early-warning methods and indicators are set around the objectives. Bank 's final risk is bankruptcy, so many of the research objectives take it as a target. But in practice bank failures are rare.Thus, the researchers turn to focus on the identification of bank risk characteristics, because the early identification of these features also can play a role in the bank risk-warning. This paper identifies three objectives, namely, the direction change of bank fragility, downgrade of supervisory rating, the probability of bank downgrade in future, corresponding to the different early-warning methods by four methods such as diffusion index, composite index, percentile ranking, and Logistic model.The direction change of bank fragility uses diffusion index, corresponding to leading Indicators; the downgrade of supervisory rating employs synthetic index and percentile ranking, corresponding to the use of vulnerability indicators;The probability of bank downgrade in future makes use of Logistic model, corresponding to the indicators of vulnerability. By calculating the warning results,diffusion index and the composite index can be compared with the actual ratings, which determine the various model parameters for the establishment of a complete early warning model.The Logistic model calculates the probability of bank downgrade in future by using the sample bank data to test the explanatory power of vulnerability indicators.At the same time, there are TypeⅠerror and TypeⅡerror in bank risk early-warning, so it is need to test the accuracy of early-warning method. In the test method, the author selects efficiency-index, the noise-signal and other methods to test the results of early warning, and correct all kinds of parameters.This paper makes the following main points.First, the risk of economic prosperity is more hidden and neglected. In this period, the bank risk early-warning system is to find the major risk points, to take action based on results-based early-warning. During the period of economic recession, the bank risk is gradually eliminated by the impact of the government expansion policy, and is clearly different from the economic boom. Second, we must learn from countries which have rich theory and practice in banking risk warning field. As the different financial history and financial market structure, national regulatory authorities tend to adopt different approaches as varying skill levels and application methods. According to their different situations, these countries develop their own bank risk early-warning system. There is no experience to draw on in the domestic context, the regulatory authority needs to fully understand and summarize the situation in advanced countries about risk of early-warning, and then combined with our existing off-site supervision of development, determine the goals and methods of early-warning. Third, there must be clear objectives and corresponding various eary-warning elements.Study found that the current risk early-warning of bank in theory and practice is still quite weak, for the early-warning objectives' logical relationships with the approach, and the indicators are still not so clear. It is need to establish the relationships between the early-warning objectives and various elements.Early-warning objectives determine early-warning methods and indicators, and also the implementation approach and process, but on the other hand, early-warning methods, indicators and practices also are the constraints on the early-warning objectives.The early-warning system is a feedback loop process. In long-running process,whether early-warning objectives are compatible with methods and indicators will be repeatedly assessed. Fourth, it should be tested and corrected to the results of the early-warning. The early-warning, to be technology, as well as to be art,has to balance two types of errors.The balance of different errors depends on the degree of tolerance for each error. No matter what kind of early warning methods,the selected indicators are not the final result, they need to be inspected and corrected in the continuous optimization of long-term practice of early-warning.The innovations of this paper are as following:Firstly, the author defines the macroeconomic environment on the early-warning and clearly puts forward the view about early-warning methods and indicators in economic-prosperity period so that it is stronger for bank's target of risk-warning. Secondly, the author proposes the concept of early-warning objectives, and points out that there are different early-warning objectives and various early-warning objectives need to correspond to different methods and indicators.Thus, the author establishes the logic between the objectives and methods of early-warning. Third, the selected indicators for early warning of significance are described, explained from the view of there meanings for early-warning, and the author uses statistical methods to test the concrete results from these methods and indicators. Fourth, the author uses these four kinds of early-warning methods measures current situation of domestic banks' risk, and tests the calculated results, and comments on the evaluation methods and indicators.