The Study Of Liquidity Stress Testing On China Commercial Banks

Due to its attributes of uncertainty and phenomenal destruction, liquidity crisis is regarded as the most vital crisis for commercial banks. Reinforcing liquidity management is an important challenge that commercial bank operators must deal with. The presence of finance furtherance casts more and more significance on risk management. This is especially true as global financial catastrophe took place recently. Supervising authorities are placing liquidity risk management on top of their list, and ask for more control on commercial bank's liquidity risks. At the same time, financial crisis also tells us that traditional tools are out of date when trying to adapt to complex circumstances nowadays. They are not suitable for controlling commercial bank's liquidity risk any more. As a brand new risk management tool, liquidity stress testing helps to profoundly understand the essence of risk management when applied, and manage banks assets efficiently. China Banking Regulatory Commission issued the "commercial bank liquidity risk management guidelines" in October 29,2009, which clearly required commercial banks to carry out a routine liquidity stress testing at least quarterly.This paper uses two methods for analysis, firstly, combining of theoretical and empirical analysis; secondly, combining of comparative study and comprehensive analysis. This paper triggered by the sub-prime mortgage crisis, which not only has great impact on international banking and also has inspiration of liquidity risk management to commercial banks of China. Then this paper introduces the development of liquidity risk management theory of the four stages. On this basis, it briefly introduces and comparatives the static and dynamic measure methods of liquidity stress testing. The static measurement method includes assets and liabilities liquidity ratio. The dynamic measurement method includes liquidity gap method, sensitivity analysis and scenario analysis. Meanwhile, it also presents the general steps of liquidity stress testing. In the stress testing framework, it thoroughly dissertates on how to carry out liquidity stress testing on liquidity risk that banks are facing with. In the part of applied research, this paper studies liquidity stress testing of eight listed banks, which includes the state-owned commercial banks and joint-stock commercial banks. The innovation of this paper is that it definite the diversification of house price as one of the risk drivers.It definite the diversification of the statutory deposit reserve rate, IPO (IPO subscription) and the diversification of house price, which causes loss of deposits as risk drivers and conducts for the liquidity stress testing empirical analysis of eight listed banks through checking their annual reports. Finally, the paper analyzes the empirical results and brings about suggestions on liquidity risk management of different types of commercial banks, which includes the promotion of liquidity stress testing, optimizing the real estate loan structure, strengthen financial innovation and development of sound liquidity management plans, and so on.