Research On Financial Safety Early Warning Index Based On KLR

Since1990"s, as the result of gradually advancing process of global economic integration and accelerating of international capital flows, financial security is facing increasingly challenges. Given the uncertainty of the global financial security environment, in order to ensure sustainable and stable development of economic, it is necessary to construct a financial security warning system suitable for China’s condition. At the same time, the study will provide financial security reference to other emerging economies.After reviewing the financial security early warning theories, warning effectiveness of FR model, STV model and KLR model are analyzed. Then, KLR model is empirically tested. Test result shows that, KLR model is able to identify financial security issues in parts of emerging market countries, but fails in detecting potential currency crisis or financial crisis in China. So, on the basis of analysis of the inherent risks within China’s current financial system, improved KLR model is used to build a security early warning system, which is suitable for China’s financial situation at this stage. In the process. MATLAB programs are used to process data from ten domestic banks and GDP or other macroeconomic data in targets selection and leading or coincident indicators distinguish. Results show that the overall financial security situation of China is fine, because most indicators are in the normal range. But the micro leading indicators suggest that the operation of finance institutions have an overheating trend, while export, one of the China’s macroeconomic leading indicators, shows that economic growth momentum is still insufficient. Finally, from perspective of liquidity, loan quality and financial innovation, relevant policies and proposals are put forward on how to protect the financial security of our country.