On Stress Testing Practice On Banking System In China

In order to safeguard the financial stability, IMF and World Bank launched theFSAP assessment program in1999. Stress Testing is an important tool for FSAPevaluation, used to evaluate some extreme but possible macroeconomic shocks on thefinancial (Banking) system stability. China has already officially launched FSAP firstassessment in2009, and has successfully completed the assessment work andpublished the results of Stress Testing on banking system in2012. But the theoryresearch and practice of Stress Testing on China’s financial (banking) system havesome problem such as starting late, lacking econometric model, etc.So this paper mainly studies the Stress Testing used in banking system. Firstly,through literature review, this paper summarized differences between Stress Testingon individual financial institutions and Stress Testing on system, and implementationprocedures of Stress Testing on financial (banking) system. Secondly, the paperresearched and analyzed the practice of Stress Testing in some country. And then, thepaper took an empirical analysis of Stress Testing on the main market risks (interestrate risk and exchange rate risk) in China’s banking system. The analysis selected9banks of Shanghai interbank interest rate benchmark interest rate quotation (as toexchange rate risk Stress Testing,7banks) for Stress Testing, the data was disclosedin the financial statements of banks. By considering the historical situation of ourcountry macro economy in history, the analysis set Stress Testing scenarios, and usedsensitivity analysis to test if the stress scenarios occurred and continued for half a yearhow the net profit and the RAROC subtracted net fee and commission income ofsample banks. The results showed that the Bank of China, China Everbright Bankfaced the greatest interest rate risk; the Bank of China faced the greatest exchange raterisk. Finally, this paper put forward suggestions in eight aspects such as theestablishment of macro econometric model, data collection and collation, research onfeedback effect, etc.