Research On The Application Of Stress Testing In The Market Risk Management Of China’s Commercial Banks

With the continuous improvement of the degree of openness of financial markets, coupled with China’s market-oriented interest rate reform basically completed, the RMB successfully joined the SDR basket of currencies,the stock market turmoil and other current affairs, the commercial bank affected by the increasing influence of market factors.Therefore, attention should be paid to the extreme changes in interest rates, exchange rates and stock market volatility and other factors,which attacking commercial banks and the banking sector. The stress testing can be used under extreme conditions for the commercial bank’s assets, earning losses that may occur, and evaluating the fragility of the banking sector.As a result, stress testing can provide a reference for commercial bank’s risk control and regulatory authorities’ risk monitoring so that ensure the healthy development of the financial system.This paper first defines the types of market risk, and clearing internal models approach as the theoretical source of stress testing method, which is the most commonly used measure of commercial bank market risk.Then,it introduces the qualitative analysis on the market risk stress testing model and the empirical analysis test of market risk pressure.Among them, in constructing the theoretical model, the comparative analysis method is used to determine the interest rate risk stress testing by the repricing gap model, and determine exchange rate sensitive gap model which is based on net aggregate exposure to test the pressure on the exchange rate risk, the combination of the concept of economic capital and Monte Carlo simulation for stock price fluctuation risk stress testing is used; In the empirical study, the commercial bank is divided into large, medium and small commercial banks according to the commercial bank’s assets scale for classification,and relativize the results of the stress testing for comparative analysis of different types of commercial bank’s market risks. Specifically, the sensitivity analysis is used to evaluate interest rate risk and exchange rate risk assessment of commercial banks, meanwhile the time series forecasting method used in Monte Carlo simulation which combine GED and GARCH assesses commercial bank’s risk of stock price fluctuation.Market risk stress test results show that for a single commercial bank, the keyways to control the interest rate risk are to grasp the structure of assets and liabilities, the size and duration of direct interaction, and the point to immune exchange rate risk is adjusting the foreign exchange positions according to the exchange rate changes, while the the key to control stock price fluctuation risk is to maintain an appropriate configuring ratio of stock price fluctuation risk economic capital;For banking, the risk of interest rates and stock price fluctuation are quiet different among large, medium and small commercial banks,while the exchange rate risk is relatively close.Using the analysis results of stress testing, some corresponding suggestions can be made respectively on the self risk control of commercial banks and banking risk monitoring of regulatory authorities.Commercial banks should be flexibility to adjust assets and liabilities structure, size and duration, have reasonable matching currency, have sufficient economic capital for stock price fluctuation risk, and improve the market risk management system within the organization.Regulatory authorities should improve the standardization and transparency of commercial bank’s assets and liabilities of the business, strengthen foreign exchange risk supervision cooperation and exchange with the international financial organizations, enrich complementary approaches for commercial bank’s capital,set up a crisis management team to conduct classification regulation for different types of commercial banks’ market risk, and improve the regulatory effectiveness.