Commercial Banks Personal Housing Mortgage Credit Risk Assessment And Economic Capital Allocation

The background of America's sub-prime loan crisis and comparison between China's and the US's residential mortgage loans market is introduced firstly. Then the researches on the credit risk evaluation of residential mortgage loans are reviewed. The VAR method and Economic Capital management is also talked about, which are the basement of most modern credit risk evaluating models. It is found that the CreditRisk~+ model developed by the CSFP is suitable for China's commercial banks to evaluate their credit risk of residential mortgage loans. After that, China's present residential mortgage loans products and their categories are introduced, as well as how their credit risk forms.On the basis of historical data of residential mortgage loans that got from one commercial bank in Nanjing, the CreditRisk~+ model's principle and relative researches are innovatively used with the Matlab software to generate a programme for evaluating the credit risk of residential mortgage loans, and finally we get the loss's probability distribution and the economic capital estimation based on VAR. At the end we put forward with two suggestions for the commercial banks to improve their risk management in residential mortgage loans operation, that is to build their internal credit risk evaluating model and to promote the Mortgage-Backed Securitization (MBS) carefully.