The Research On Liquidity Risk Management Of State-owned Commercial Banks In China Based On Stress-testing

Throughout the global financial crisis which began in mid-2007, many banks struggled to maintain adequate liquidity. Unprecedented levels of liquidity support were required from central banks in order to sustain the financial system and even with such extensive support a number of banks failed, were forced into mergers or required resolution. These circumstances and events were preceded by several years of ample liquidity in the financial system, during which liquidity risk and its management did not receive the same level of scrutiny and priority as other risk areas. The crisis illustrated how quickly and severely liquidity risks can crystallise and certain sources of funding can evaporate, compounding concerns related to the valuation of assets and capital adequacy.From the practice of many institutions, The VaR model is widely used in liquidity risk management. However, VaR is unable to measure the risk exposures of extreme cases, so the International Organization of Securities Commissions puts forward the concept of stress-testing as early as in1995. As make up for the shortcomings of VaR, stress-testing is used to measure the tail of yield distribution, able to prevent and control liquidity risk, and the test results can be applied to the investment decision-making process and performance evaluation, so as to improve the effectiveness of bank’s risk management.At present, the liquidity stress-testing of domestic banks is still in its early development, its theory accumulation, practice experience, technology platform and related talents are scarce, this makes the information provided by stress-testing lack of effectiveness. Against this background, combined with the theoretical basis, to explore proper method which suitable for the actual situation of China’s banking industry is very necessary.Overall, the framework of this article mainly consists of the following parts:Chapter1:Preface. Mainly elaborates the meaning of this topic, research results of scholars both at home and abroad, and the paper’s research framework and method.Chapter2:Overview the Liquidity Risk Management of Commercial Banks. First of all, introduces the banking liquidity management background, describes the definition and characteristics of liquidity risk. Then, analysis the liquidity risk profile of domestic banks. Finally, by comparing the Basel committee on banking liquidity regulatory standards and the domestic regulation situation, reflects the importance of liquidity risk management from another perspective.Chapter3:The Connotation of the Liquidity Stress-testing. This chapter briefly describes the definition, objectives and current situation of stress-testing. At the same time, this part also illustrates the general program of stress-testing.Chapter4:The Empirical Research of Liquidity Stress-testing. This part establish a multivariate regression model based on the monthly data of four large state-owned commercial banks, measuring banks’liquidity level under the condition of extreme changes in risk factors.Chapter5:The Thinking of Liquidity Risk Management of Domestic Banks. According to the analysis before, and refer to the new characteristics of liquidity risk, this part give some feasible countermeasures to domestic banks, and also presents some new ideas from a regulatory point of view.On the basis of above research, this paper come to the following conclusions:First, for the three risk factors under stress-testing, the influence of medium-and long-term loans is most significant, indicating that the state-owned commercial banks are more sensitive to changes in the duration of the loan.Second, according to empirical conclusion, state-owned commercial banks have ample liquidity, therefore, a better ability to resist risk.Third, on the control of the risk factors, only for the "medium and long-term loans" and "security investment" banks have larger autonomy. The deposit growth rate depends on enterprises and individuals’propensity for saving and investment.Fourth, optimizing the assets structure and implementing reasonable liability management are problems urgently to be solved for our commercial banks.