The Stress Tests And Its Appliance In Credit Risk Of Commercial Banking System

At present, the traditional management of credit risk is used in Chinese banks, which relies on qualitative analysis and subjective judgments. Joining in the WTO, we is catching up with process of financial globalization, according to the "Basel Capital Accord ", and implying in the methods of quantitative analysis, like Credit Metrics and Credit Risk KMV. However, they get the results under the stability of overall macroeconomic, but overlook the assessments when small probability events happen. So in 2004, the Basel Committee proposes that stress tests must be used in management of credit risk in the "New Basel Capital Accord". Therefore, our banking system should try to follow the international pace, absorb the experience of foreign countries and strengthen research to resist the occurrence of economic fluctuations.Important theory of this article is stress tests. The content is "Why must stress tests be demanded- what is stress tests-how to measure stress tests-the application of stress tests. Here, macroeconomic stress test is employed on assessing credit risk of Commercial banking system. In detail, assuming two extreme situations-sharp decline in nominal GDP and surging down in inflation rate, the results are that substantial increase of the rate of default loan in different degree. Therefore, we can say that Chinese banking system is inadequate in resolving risks in face of macroeconomic shocks, and the stability remains to be further strengthened.