Research On Macro Stress Testing Of Commercial Bank’s Capital Adequacy Ratio

As the trans it point of the operation of the nationa l economy, commerc ia l bankscan meet the socia l capita l balance of supply and dema nd. It p lays an irrep laceablerole in the deve lopme nt of the nationa l economy. The eruptio n of the financ ia l cris isin recent times has a strong correlation with the instability of the co mmercia l bank, sothe regulatory authorities have gradua lly strengthe ned capita l adequacy ratiorequire ments for them. Howe ver, the capita l adequacy ratio re quire ment s upervis iondoes not ma inta in the stability o f the commerc ia l banks. The ma in reason is that thereis a strong pro-cyclica lity in the commerc ia l bank s capita l adequacy ratio. Back inthe boom, co mmercia l bank has a higher capital adequacy ratio. However, in thedepressed econo mic conditio ns, the asset qua lity of commerc ia l bank deterioratesrapid ly; it cannot incorporate funds and results in capita l adequacy ratio decliningrapid ly. The purpose of this paper is to discuss the changes of bank s future capita ladequacy ratio in the consideration of cha nges of the macro-economic factors. Thesignifica nce of this stud y is that taking the macro stress testing method to bank scapita l regulation whic h provides a method and basis to the operating stabilitymeasure ment o f bank for long-term period and dynamic adjustment o f the bus inessstrategy.This artic le is divided into two steps to establish the capita l adequacy ratiomeasure ment model based on the macro economic shocks in order to comb ine themacro stress tests and capita l adequacy measure ment. The first step, to establis h thecommerc ia l bank credit risk stress test model whic h refer to CPV measure ment tomeasure the credit losses. In this model, three large state-owned commercia l banks areselected as the research objects, us ing pane l data regressio n method to se lect GDPgrowth rate and excha nge rate through e mp irica l ana lys is. The second step, toconstruct commerc ial bank s capita l adequacy ratio measure ment model in whic hthe net interest margin inco me and credit losses have been seen as the ma in parts ofthe capita l. To construct macro econo mic stress scenarios, analyzing the changers ofthree commerc ial banks capita l adequacy ratio under different stress scenarios.Meanwhile, this paper discusses an effective supple mental approach of capita ladequacy ratio through the net interest margin and credit growth rate. F ina lly, thispaper put forward-looking bus iness manage me nt strategies for commerc ia l banks. This artic le is divided into three macro stress scenarios to study the commerc ialbank s capita l adequacy ratio. In the conc lus io ns, with the deterioratio n ofmacro-econo mics, commerc ia l bank s capita l adequacy ratio decreased gradually. Inthe mild macro stress scenarios, three co mmercia l banks are a ble to meet theminimum regulatory capita l require ments. In the moderate macro stress scenarios, inadditio n to the capital adequacy ratio of the Bank of China is slightly lower than theminimum regulatory require ments, the other two are able to meet regulatoryrequire ments. In the extre me stress scenarios, three co mmercia l banks capita ladequacy ratio is significa ntly lower than the minimum cap ital regulatoryrequire ments. Meanwhile, this paper analyzes supple menta l approaches of the capita ladequacy ratio fro m the two indicators of the net interest margins a nd the creditgrowth rate. It comes to the conc lus ion that the commerc ial bank should increase netinterest margins or to reduce the rate of cred it growth to improve capita l adequacyratio.