Our Country Commercial Bank Internal Fraud Risk Pressure Test Research

Commercial bank as one of the core of the modern financial industry, faces many risks in their operation. The internal fraud risk has the feature of man-made, low frequency and high losses, caused a great destruction. In recent years, a spate of commercial banks’ internal fraud cases, some have caused enormous losses, some had an impact on banks’ reputation, some of even directly led to the bankruptcy of the bank. In the field of commercial banks’ risk management, stress testing is a relatively new method. China Banking Regulatory Commission issued the Guidelines for the Stress Testing of Commercial Banks in December25,2007. And organized commercial banks for real estate loans stress testing and liquidity stress testing since2008. In this context, use the stress tasting in internal fraud risk management can promote the China’s commercial banks to improve risk management.In this paper, I analyzed the mechanism of internal fraud losses of commercial banks in China, there are mainly three forms of the mechanism:First,"Commissioned-agent "relationship under moral hazard, the second is the rent-seeking behavior in credit, the third is the gambler psychology’s take the risk. I also analyzed the characteristics of internal fraud risk in commercial banks, there three main characteristics:Man-made and endogenous, high-low-frequency loss and the occurrence of periodic.According to the commercial bank stress test methods, I summarized and designed the specific process of the commercial bank’s internal fraud risk stress testing. Include five parts:Determine the pressure objects and pressure indicators, set of stress factors and stress indicators, namely the stress scenarios, build the model of the pressure and running stress tests, analysis the stress testing results. I found that the lognormal distribution can better fit the extent of the loss distribution, the Poisson distribution can better fit the loss frequency distribution, and using Monte Carlo simulation method to fit the overall internal fraud losses within one year, in the case of joining the stress factors, we calculated the risk of internal fraud risk VaR.Through the media publicly reported we collected147China’s commercial banks’ internal fraud loss events from1990-2010.Based on the data, we analyzed the statistical characteristics and the classification characteristics. The results show that these features validate our formation mechanism and summary of the characteristics of the risk of internal fraud. In the empirical process of internal fraud risk stress testing, use the original data set as a reference group, we designed7stress scenarios according to the extreme loss events occurred in the history. The reference group in the99.9%confidence level VaR value is8.49billion yuan, joined the7stress scenarios VaR value were9.639billion yuan,15.542billion yuan,18.252billion yuan,26.99billion yuan,17.9billion yuan,101.1billion yuan and29.04billion yuan. The results show that the pressure model has better conductivity and sensitivity, with the increase of stress scenarios, China’s commercial banks overall risk of internal fraud is significantly increased, its highest rate of change is1090.8%, and these are precisely the internal fraud events happened in the history of French bank Societe Generale. Show that the use of stress testing in China’s commercial banks internal fraud risk management is extremely important.