An Empirical Study On Stress Testing Of Listed Commercial Banks’ Market Risk

The financial crisis of 2007 triggered by U.S. subprime mortgage crisis sounded the alarm to the global commercial bank, and also make banks began to recognize the importance of stress testing, but not just rely on VaR models. Stress tests have quantified the risk of exposure in extreme cases, and thus establish the risk factors associated with different financial conditions. International banking and risk management organization have made great efforts to emphasize the importance of stress testing. Stress testing is beginning to be the focus of risk management. With the risk of instability of the growing interest and exchange rates, as well as the scale of China’s commercial banking business continues to expand, the position of stress testing in the market risk management of China’s commercial banks are increasingly important. At present, the empirical analysis of stress testing is mainly used in credit risk in China, but not the market risk. In this context, this empirical study of market risk stress testing analyzed 16 listed commercial banks, in order to provide some reference to China’s commercial banks in the market risk stress testing in the future.Through the previous literature review we found that Chinese scholars focus on the stress testing theory and the empirical analysis in credit risk, stress testing in market risk is relatively small, so this paper mainly focuses on our current 16 listed banks and analyze their interest rate and exchange rate risks. This paper selected interest rate sensitivity gap method and the net aggregated exposure (NAP) model to analyze listed banks’interest rate and exchange rate risk.According to China 2002-2012 years’interest rate charts and the exchange rate of RMB against the U.S. dollar charts from April 2005 to December 2013, we select the interest rate and exchange rate risk stress testing scenarios. The empirical analysis revealed that the interest rate risk of five state-owned commercial banks is generally higher than other joint-stock commercial banks. The state-owned commercial banks should pay attention to its exposure to interest rate risk and improve their profit structure to avoid serious interest rate risk. Besides, the foreign exchange rate risk of ICBC and the Bank of China are much higher than ther banks. Generally speaking, the impact of exchange rate risk of general commercial banks is relatively small.