Research On Systematic Risk Index Construction And Early Warning Of China 's Banking Industry

China’s financial system is a bank based financial system, the stability of the banking system directly affects the stability of China’s financial system and even the stability of the whole economy. Banking system risk has the characteristics of externality, contagion and so on. A systemic risk in the banking sector will have a serious impact on the financial sector and the economy. The study of China’s banking system risk and early warning system has a realistic significance.Based on the domestic and foreign banking system risk literature, this paper construct our country banking systemic risk indicators from our country Banking Systemic Risk Formation Mechanism. This paper analyze system risk factors’ influence on the system risk of China’s banking system risk and gives out the early warning research for the system risk. Specifically, we analyze our country banking systemic risk formation mechanism form the individual bank risk from exposure and infection, the stability of the inter-bank market, overall macroeconomic and foreign factors. Then, we construct our country banking systemic risk indicators. Further more, we select monthly data from 2002 January to December 2014. Based on Logit model and Monte Carlo simulation method of pressure test of China’s banking system,we can find that how risk factors affects our banking system risk and if the economy of our country is in extreme cases, we can see the probability of system risk outbreak.This paper draws the conclusion that the loan to deposit ratio, CPI and M2, real overvaluation of the exchange rate and foreign exchange reserves growth will increase China’s banking system risk, and fiscal expenditure decreases our banking system risk. Sensitivity analysis shows that the financial expenditure of China’s banking system has the greater the sensitivity of the risk. The stress tests found that when each influencing factor in the average level, China’s banking system crisis probability is less than 10%, when the each influence factors at the lowest level, our country will occur systemic crisis. Finally, on the basis of the empirical results, this paper gives the relevant policy recommendations, but also pointed out the deficiencies of this study.