Research On Constructing Early Warning Index System Of China’s Banking Sector Systemic Risk

Since2008, there have been America subprime crisis and the European sovereigndebt crisis in the US, Europe and other developed economies. After the outbreak of thecrisis, it is the consensus that domestic and foreign academic and regulatory shouldstrengthen the macro prudential supervision, early-warning and prevent of bankingsystemic risk. Currently Chinese economy has entered a "new normal" stage, thefinancial field is faced with asymmetric to cut interest rates, loan to deposit ratiostatistic caliber adjustment and other changes, deepening of financial markets reform,the periphery of frequent financial crisis, recovery disproportionally. In the globaleconomic and financial closely related background, although still in steady development,Chinese banking faces systemic risk greatly. Therefore, it is necessary to research on ourbanking systemic risk early warning and construct early warning indicators of systemicrisk for banking system, which is suitable for the current situation of our country.Based on the system science as theoretical guidance, from the perspective of macroprudential supervision, through qualitative analysis and quantitative analysis of VAR,this paper selects10related indicators in four sub-systems, which contains the macroeconomy, the impact of international shock，the financial market and the banking system.Then we construct a multi-level indicators system for the early warning of our bankingsystemic risk. On this basis, this paper sets the threshold and warning interval by KLRsignal method, the domestic and foreign experience. Through setting the correspondingindex weight by the Entropy Method and the design of index system for mapping thescore, finally this paper gets systemic risk index scores and felled interval of ourbanking systemic risk by using annual data from2004to2013.It is studied that the highest score is57.97in2009, which is in risk interval, whileother9years are in safety interval. Overall, there is not so much banking systemic riskin our country, but it still exists hidden danger. Separately, the growth rate of fixed assetinvestment in macroeconomic, the short-term foreign debt ratio in the impact ofinternational shock, broad money supply growth rate and credit and the real exchangerate appreciation in financial market, the credit growth/GDP growth, the rate of badloans, loan to deposit ratio in banking system. all seven indicators contribute largely toBanking Systemic Risk Warning. Close attention should be paid to them.On the basis of theoretical research and empirical analysis, this paper gets that we need to establish a set of complete systemic risk early warning system, which canconnect with early warning index system effectively and make sure it can workeffectively. Finally, this paper puts forward the corresponding policy recommendationsfrom the establishment and running process of the early warning system.