The Study Of Banking Stress Testing For Credit Risk Based On Macroprudential Management

Banking operating characteristics determine the existence of many risks inbank ing syste m. Changes in the economic and financ ia l enviro nment will trigger theserisks and cause consequentia l loss. How to assess the impact of macroeconomicshocks on the banking system is a proble m, to which banking mana ge ment departme ntand fina nc ia l institutions mana ger within countries need to pay attention.Internationa l financ ia l crises in2008have shown that countries are lack ofsuffic ie ntly effective assessment tool aga inst syste mic financ ia l risk. To strengthenthe study o f such tools is urgently required. On the basis of internatio nal financ ia lcris is in2008, this paper try to ana lyze the formation mecha nis m of syste mic risk inbank ing syste m, to ana lyze the basic structure of bank ing credit risk stress test basedon macroprudential ma nage ment syste m and the n to explore it, and to focuses onscene setting method and the imp leme ntation of risk measure me nt method. Fina lly,this paper suggests a co mplete set of macro-stress tests of bank ing credit risk.This paper analyzes and summarizes the views of banking syste mic riskformation, examines the develop ment o f the banking industry under the theory ofsystems sc ience, and investigates the evolution o f banking s yste mic risk. Theuniq ueness of economic deve lopme nt pattern render the features of Chinese bank ingsystem d ifferent fro m other countries, which further made the generatio n mec hanis mof Chinese banking syste mic risk uniq ue. Meanwhile, thro ugh the study of Chinesebank ing syste m and the characteristics of the externa l enviro nment, this paperdiscovers specia l formation o f Chinese bank ing syste mic risk, which are potentia ltransfer fro m debt risk of governme nt to banking syste mic risk, high credit industryconcentration ca used by the mode of econo mic deve lopment and banking risk underthe background of market-oriented interest rate reform.This paper first ly reflects s ignificant cha nges of the internatio na l econo mic andfinanc ia l enviro nment in recent years, puts forward the composition, theorganizatio nal princ ip les and the working princ ip les of macroprudentia l mana geme ntsystem, and then defines the importance of macro stress testing of credit risk. Thispaper ana lyze the develop ment and evolutio n of stress test function, study the interna lrelations hip between macroprudent ia l ma nage ment and macro stress tests, then fina llyexplore the new meaning of credit risk macro stress tests, which are defa ult correlation a na lys is o f credit risk assets, the application o f counter-cyclica lmana ge ment, emphas is on rules of econo mic cycle operation and interaction lawbetween banking syste m and macroeconomic. Based on views mentioned above, wecan extract ideas of banking systemic risk preventio n during research of macro stresstest for credit risk at ho me and abroad.To effective ly assess banking syste mic risk, this paper embeds counter-cyc licaladjustme nt think ing into scenarios setting. Through analyzing the historica l variationof macro factors by means of exponentia l smoothing model, regression model andhistorica l scenario ana lys is, we can identify a nd distinguis h long-term trends andshort-term fluctuations in the overa ll changes of macro factors, and then des ignthrough-the-cyc le scenario, point-in-time scenario and extre me risk scenarios. Toeffective ly assess financ ia l syste m’s feedback effects on real econo my, this paperclassifies the macro factors into macro-economic factors and the financ ia l syste mbehaviora l factors, takes causality test on two groups of factors and creates a vectorauto-regression model includ ing macro factors whic h have causa l relations hip. On thebasis o f the model outp ut va lue, we could set factor stress scenarios va lue, so that thestress scenarios can, to some extent, re flect interactio n law between macroeconomicand banking syste m.Cons idering the rules of formation and appearance of banking syste mic risk, thispaper expands the multip le risk factor model b y introducing ind ustry re le vance, LGDvolatility characteristics and risk fat-tailed features into it, in order to make stress testmore effective in assessing bank ing syste mic risk. Under the he lp of d istrib utionmapping princ ip le, output of stress scenarios sett ing is converted into inputparameters of risk measure ment model. And then some numerical exa mples areconducted, results of whic h show that the model introduc ing in industry relevancewill lead to growing loss o f non-directly affected credit assets, the model introduc ingin LGD vo latility will lead to increase in loss of samp le portfo lio, and the modelintroduc ing in risk fat tail will lead to significant growth in va lue-at-risk of samp leportfo lio.After summar izing the previous princ iples and methods, this paper proposesemp irical stud y of macro stress tests for bank ing credit risk. The test results show thatwith the strengthe ning of the degree of macroeconomic shocks, changes in thedistribution o f the samp le loss are obvious, the growth in va lue-at-risk and expectedloss are significant. Compared with the normal mode l, the ta il risk of samp le cha ngesobvious ly, the increase of va lue-at-risk and expected shortfa ll is s ignificant. After the comparison of losses in different sectors, you can find there is a significant positiverelations hip between increase of the expected loss in certain industry credit asset andthe correlation coeffic ient of the impacted industry and the industry itse lf.Macro stress test for credit risk could be e ffective ly used in the operation ofcounter-cyc lical ma nage ment, the build ing o f dyna mic risk forecast syste m as well asthe process of capita l a llocatio n. Cons idering the practical s ignifica nce of the stresstest’s promotion, China should attach importance on optimizing the stress testoperating environme nt, strengthening the building of banking sector database,exerting active roles in the regulatory agenc ies, improving deve lopment andapplication leve l for credit risk ma nage ment technolo gy.