The Application Research Of Stress Testing In Liquidity Risk Management Of Commercial Banks In China

The global financial crisis caused by the subprime mortgage crisis shows that the liquidity of commercial banks is quickly exhausted under the sudden reversal of market conditions. The “money shortage” occurred in June 2013 in China also sounded the alarm for the liquidity risk management, the interest rate control has basically liberalized, commercial banks must pay attention to the prevention of liquidity risk. Stress testing as an important risk management tool, should be applied to the liquidit y risk management to help banks estimate the bearing capacity of liquidity risk under unlikely but plausible scenarios. The banks can use stress testing to find out potential risk points and prevent the liquidity risk with pertinence.Through theoretical analysis, this paper concludes that the stress testing and liquidity risk management has a strong correspondence. It is necessary to apply stress test in the commercial bank liquidity risk management and this paper puts forward a method of applying stress testing through empirical analysis. First, the empirical study uses principal component analysis to determine the risk factors of liquidity risk stress testing. The deposit-reserve ratio, interbank offered rate and loan-to-deposit ratio are selected through the analysis. Then using panel data regression method to build stress testing model. Finally, the liquidity stress testing is performed by setting up mild, moderate and severe stress scenario combined with the historical situation and the assumption. The stress testing results show that a commercial bank in mild stress scenario has not meet regulatory requirement, two commercial banks can’t meet regulatory requirement in severe stress scenario, banking industry as a whole will not suffer liquidity crisis, but individual banks should prevent the impact of severe stress scenario. Especially after the cancellation of loan-to-deposit ratio, banks should pay attention to the transformation of the business in both the assets and liabilities.As the stress testing in our country is still in the exploration stage, there are many deficiencies. According to these deficiencies, this paper puts forward suggestions to improve the application of stress testing in China that mainly include strengthening the information disclosure of stress testing, improving the stress testing system, perfecting the stress testing management system and strengthening exchanges and cooperation.