Liquidity Stress Test On Commercial Banks Of China

Since the international securities organization clearly come up with the definition of the stress testing in the mid of1990s, the stress test, as a supplementary means of VaR, gradually gets the attention of the international finance organizations and national regulatory authorities and it begins to be applied to the individual risk, overall risk of the financial organizations and the risk management among the stability of the entire financial system. Although the agencies recognize the huge threat of extreme events that may occur on the financial institutions, but the bloody fact that the world’s top investment banks have been bankrupt one after another in the financial crisis in2008tells us that our preparedness for extreme events is not enough. Liquidity risk of commercial banks is a kind of ultimate risk, the general risks of the bank, such as the credit risk, the market risk and the operation risk can affect the liquidity of the bank eventually after the conduction of the market. Therefore, with the use of stress testing system, a comprehensive study of commercial banks’liquidity risk is an essential issue, which is significant to the risk management of financial institutions.As the pressure testing is getting more and more important, this article studies the risk management of the stress testing for the joint-stock commercial banks of China. This article is divided into five chapters. The first chapter is the introduction, mainly introducing the background, establishing the standpoint of this argument and expounding the significance of the research and the research status at home and abroad; the second chapter reviews the study course of liquidity risk management, introduces the definition and procedure of the stress testing; the third chapter explains the specific methods of pressure testing in detail from both static and dynamic aspects; the fourth chapter takes the example of Shanghai Pudong Development Bank, build up the pressure testing model and construct scenarios impact according to the procedure of the testing, to observe the liquidity status of the bank under the impact of extreme event; and some suggestions about the pressure testing and enhancing liquidity risk management are put forward based on the testing result on the liquidity in fifth chapter.In this article, I build a testing model according to the liquidity theory, select the statutory deposit reserve ratio, the deposits concentrated extract which was caused by the subscription of new shares and non-performing loan rate as the risk factors, to observe the liquidity status of Shanghai Pudong Developing Bank respectively under the mild pressure, moderate pressure and severe pressure. And I find that the probability of liquidity risk is very small under mild pressure, the probability of liquidity risk is small under moderate pressure and the probability of liquidity risk is high relatively under severe pressure. Therefore, China has to build a liquidity stress testing system which is in accordance with the national conditions, establish the uniform standards for industry liquidity stress testing, promote the liquidity stress testing any further, and apply the testing results to the risk management to strengthen comprehensively the liquidity risk management of the financial agencies in China.