Default Risk Measure Of China's Banking Operations

In this paper, firstly, we briefly introduced the chances and challenges the banks facing after New Basel Capital Accord's appearance. In a word, those banks will surely face much more strict supervision. So the banks should build a new measuring system to adapt the new treaty. After that, we discussed some methods about measuring default risks, and decided KMV model, which is most suitable to our country. Of course, we need to modify the model to adapt our country. So we made some appropriate changes after considering our country's condition and KMV model. Then we used the data of 16 listed banks and GARCH model, after necessary calculation, we got the default risks of the 16banks, and extended the results to other unlisted banks which are not suitable to the KMV model.The results show that the banks in our country do not exist default risks as the EDF calculated are very small, almost negligible. The result is tied to our government's protection. So, as though the New Basel Capital Accord asks for stricter supervision, our country's banks are still safe.Finally, this paper puts forward some advises on supervision.