The Research Of Stress Testing In Bank Credit Risk Management

With the globalization and intergration of the world economy becoming more and more close together.How to measure and supervise different types of risks faced by finance systerm making many methods for risk management have been found and developed. The old technology of risk management like as standard spread,βcoefficient,continued period and delta method just can fit to special finance tools and scope, they are not so good at reflect true risks. In this condition, managers, especially higher mandgers need a technological method which can reflect risks of finance and investment compose all-roundly. Stress testing systerm can suit the request at the moment.Stress testing assume that market in the badest condition (eg:interest rate rise or stock price down suddenly),analyse the effection to asset combination. iosco(1999)defined that Stress testing is a tool to measure and found the risks faced by asset combination.BASEL defined that it is a method of measuring potential losses which exceptional but probably to happen in future faced by financial institutions.BIS defined that it is a generic name of technology to measure vulnerability faced by financial institutions which is unusual but credible.The CBRC promulgated by the Commercial Bank of our country pressure testing guideline says:Stress testing is a tool to calculate some possible losses which assumed that banks facing probability events in extreme adverse circumstances, to analyse the loss of the adverse impact on banks profitability and capital,then made a assessment and judgement to vulnerability of Single bank, Bank Group and the banking system and to take the necessary measures. This article described this definition of the pressure test is mainly for the cbrc.A complete risk of commercial banks stress testing process included of:to ensure reliable data, investigation of portfolio and the environment, the establishment of pressure and determine the impact size and perform stress testing, report and release the pressure test results and so on of several steps.To ensure accurate and timely credit risk management of data, is one of the most important link in the credit risks of stress testing. Investigation of portfolio and environment with the aim of identifying an important risk factor. Define various risk factors, bank credit risk factors of commonly including of counterparty risk-this section contains probability default,loss given default and exposure at default. In addition, the borrower early repayment will lead to further investment risks, so the maturity period may be regarded as a risk factor; The overall economic factors like as economic growth, unemployment rate or price impact on portfolio macro-economic variables can be regarded as a risk factor; Other industries and markets, about the various political or economic factors will also be considered a risk factor; Market risk factor -- banks holding bonds or securities and other financial products, while facing market and credit risks. It is difficult to distinguish market risk or credit risks which a effect of pressure on such goods, So when we begin to test pressure, it is necessary to assess two types of risk factors; Other types of risk factor and so on. Establishment of pressure, according to the facing problems and practical needs, usually two types of establishment of pressure test, that is, single-factor stress testing and multi-factor stress testing. To determine the impact size, after investigation of the risk factors and determination of making which pressure type, the next question is to decide the size of the impact, there is a interaction between determination of the size for shock and each risk factor included in the stress testing. Perform stress testing, once built up the pressure and determines the size of the risk factors impact, you can perform stress testing, and judge the possible loss of credit portfolio under the pressure; Final test results report.The stress testing is first to respond been formally proposed amendments to the 1996 BASEL Capital Accord and began to use it. Since the outbreak of the Asian financial crisis in 1997 and the fall of russia's debt crisis in 1998, because of its unique advantages compared are increasingly broad attention. In the banking sector is widely recognized and accepted under the regulatory authorities of the developed countries in the world require or encourage banks to follow the Basle Committee on Banking supervision's proposal for pressure testing work, developed countries authorities have called for financial institutions should have stress testing analysis in the annual financial reports,to make shareholders and other various sectors of the community have a deeper understanding of risks and development prospects in the future.With the continuous opening of china's capital market. our financial industry will face severe challenge of financial globalization, how to measure and control financial risk which can not be measured by conventional methods is a major issue we must consider. therefore, to promote the use of stress testing system for comprehensive risk management in our financial institutions, has a decisive role to the development of our financial industry healthily.China has begun application of stress testing in the financial field, but restricted banking risk management techniques and talent shortage in the country, there is no effective result. Although the application of pressure testing method just beginning, but get rapid promotion in practice, has been widely used as a tool to analyse stability by policy administration Although the method of application is not yet mature enough, due to its unique perspective and benefits,it will more and more be applied as the main tool in risk management byfinancial institutions and to optimize the use. On a theoretical level, the article mainly introduces the background of the stress testing system, domestic and international situation, the basic contents and the steps for risk management.At the practical level, using this methodology under certain scenario,using the econometric model test measure of a bank's credit risk and empirical analysis and test the feasibility of this method.This article is divided into four chapter. First major including general overview of their background, the international situation and development trend. Second, the methods of stress testing, the definition of discrimination, general theory, procedures, and scope of application. Third,takeing credit risks for example, using the econometric model of Logit to measure credit risk,this chapter includes Logit model about, credit risk measurement setting, selection of variables and data, multiple linear regression analysis, explanation to the results and put forward policy recommendations.Because this method used in China has just started, there is no deep research on the risk management for many financial institutions, in particular, credit risk of banks, this article is mainly to show a macro concept to domestic managers of financial institutions, taking stress testing system as a whole not be isolated. Even if some risks testing measures like as VaR method can also play a very good role of supervision, but for some special risks (Small probability incident)it is necessary to use a combination of the two, this test for example, is only a reference model for credit risk.Since the data collected and the model accuracy are not so perfect,it is hard to achieve higher regulatory requirements, as an attempt,may be a pioneer for the future accurate model.