Stress Tests Applied Research In China's Commercial Banking System Credit Risk Management

The global crisis caused by U.S. subprime mortgage in 2008 has not only triggered experts, scholars and authorities on the thinking of traditional risk management techniques, but also encouraged people to attach attention to the possible effect of "extreme but plausible events "on the financial system. Meanwhile, with the gradual opening up of international financial markets, as well as the expansion of their size, domestic commercial banking has been confronted with increasingly serious threats from credit risk. Efficient management over commercial credit risk is not only the problem that needs to be solved by the banking industry, but is an important direction for academic research as well.And the stress test proposes a reasonable research direction for credit risk management, which differs with the traditional VaR(Value at Risk) methods measuring risk.This paper first summarizes the theories, methods and applications of stress testing, and then conducts empirical research on the systematic credit risk management by domestic commercial banks.By referring to the advanced practice of foreign scholars and combined with China's national conditions, we creatively introduce a VAR(Vector Autoregression)-based approach, namely the new model of macro stress testing, into credit risk management of commercial banks. Through the impulse response and variance analysis, the impact of macroeconomic factors on the loan default rates of the banking system is measured, and a reasonable conclusion is reached that the growth rate of GDP is the most significant among all the endogenous variables. After that, based on the VAR model and the historical distribution of GDP growth rate, we take the interaction between the variables into account and set several possible stress scenarios. Eventually, we come to the conclusion that under a sudden slowdown in China's GDP growth rate (under 6%), the credit risk of domestic banking system will increase significantly, our banking system's ability of warding off the impact of macroeconomic risks is limited and the financial stability of our banking system need to be strengthened. In the end, this paper analyzes the limitations of stress test's application in domestic commercial banks' credit risk management, and some future research prospects are proposed。...