The Research On The Liquidity Risk Stress Testing Of The Commercial Banks In China

In2008the outbreak of the financial crisis proved that the liquidity of bank wasentirely possible rapid depletion in a very short time. In2010Basel committeepublished Basel III made the new liquidity measures that in order to enable banksto rely more on their own ability to deal with the liquidity risk. At present the liquidityrisk management level is still relatively weak in China. Under the historicalscenario or the hypothetical scenario liquidity risk stress test estimates the bearingcapacity of banks when faces a small probability of extreme adverse events. Analyzingthe liquidity situation of commercial banks, the banks can use the results of the stresstests to find out the weakness of bank and improve the ability of resisting risk.This paper researches the theories about the liquidity risk stress testing ofcommercial banks, then conducts the empirical analysis. The aim of the research is todesign the suitable stress testing scenarios of the commercial banks. The research buildsmild, moderate and severe scenario risk impact by historical data and hypotheticalscenario. According to the test results find the weak points of banks’ liquiditymanagement and propose to increase the level of liquidity risk stress testing measures.The empirical study uses the principal component analysis to determine the factorof liquidity risk stress tests. The GDP growth rate, the rediscount rate, deposit and loanspreads and the SSE composite index are selected through the analysis. The stress testuses panel data regression analysis method to estimate the liquidity ratio and the loan todeposit ratio in the listed banks from2008to2013quarterly data. In the empiricalresearch of the liquidity ratio, the SSE Composite index gets through the significant test.In the empirical study the loan to deposit ratio, the discount rate gets through thesignificant test, then combining with other risk factors to set up pressure situation. Theresults show that commercial banks can endure the impact of mild and moderate stressscenarios, but the bearing capacity is insufficient in severe stress scenario. Thecommercial banks should strengthen the liquidity risk management. The paper also putsforward the policy recommendations about the liquidity risk stress tests in China thatmainly include establishing stress test database, improving the stress testing system andperfecting the stress testing system.