| Macro stress-testing are a range of techniques used to assess the stability of the financial (or bank) system to major changes in the macroeconomic environment or to exceptional but plausible events. Specifically, there are sensitivity analysis method, scenario analysis method, piecewise approach, integrated approach, bottom-up method, top-down method, aggregate data method, individual data method, and so on. Macro stress-testing of the stability of the banking system is used to estimate impacts of the macroeconomic shocks on the stability of the banking system.The process to perform macro stress-testing is: firstly, identifying the vulnerability of the banking system based on the back ground information in the macroeconomic circumstances and the banking system soundness indicators, that is, to pay attention to the risk factors specially (interest rate risk, exchange rate risk, credit risk , liquidity risk, asset price shocks, etc.); Once identified the key issues or major vulnerability, the next step is to build scenarios, this is the basis of macro stress-testing. This step is to look for available data and to develop macroeconomic model. Scenarios are generated under the overall macroeconomic framework or model by using these data and according to the complexity of the banking system and the availability of suitable models; after generated a series of adjustment scenarios in a consistent macroeconomic framework, the next step is to assess the affects the specific risk factors or a combination of risk factors on the banking system by a macro stress-testing model; if the feedback effects don't be considered in macro stress-testing model, it is necessary to use the transmission model to estimate the feedback effect among banks; the last step is to interpret and show results publicly.Although it is useful to assess impacts of the tail events by macro stress-testing, in fact, macro stress-testing is not a precise measure of the extent of the loss. Disclosing results of macro stress tests (such as mean, fluctuation range) not only provides more the financial market information, but also helps banks to compare test results. Disclosing test scenarios will also help raise risk awareness, and improve banks'stress-testing program.Notwithstanding the implementation of macro stress-testing started recently, macro stress-testing methods have constantly improved over the years, becoming a crucial component of the toolkit of banking supervisors and central banks for assessing financial stability.The typical macro stress-testing systems are IMF and World Bank's FSAP stress test system, the Bank of England's TD Pressure Measurement System, the Austrian central bank's SRM test system, the latter two of which are developed form the FSAP stress-testing system. FSAP stress test is a primary method to assess the financial stability, which is taken usually by banking supervisors and IMF. Credit risk, market risk (interest rates, exchange rates, volatility, stocks, real estate and other asset price risk), liquidity risk and the risk of transmission were tested in FSAPs.With the FSAP has become a widely accepted financial stability assessment framework, China is also actively promote the relevant work. Because of domestic banks risk management techniques and lack of talent, promotional work on stress-testing is ineffective. Although micro stress-testing in single bank has already made a new beginning, "financial system stability report (2008)" published by the People's Bank of China still lack macro stress-testing content, which does not help us to assess the stability of our banking system rightly, and to make policy according economic and financial situation.In response to the sub-prime crisis, China has implemented a proactive fiscal policy and loose monetary policy, the scale of China's banking sector credit growth against the extraordinary period of economic growth, increased credit concentration, capital adequacy ratio decreased, in order to ease capital downward pressure, in 2009 all commercial banks issued subordinated debt and hybrid capital bonds, there ware 24 commercial banks issued bonds in the interbank bond market. From the above analysis on the development of China's banking industry and potential risk shows that China's banking industry is now running smoothly, but if macro-economic growth rate fell, real estate prices bulged, stock and bond market volatility increased and other adverse shocks happened, the banking industry credit risk, market risk, liquidity risk and the overall risk will increase. It is necessary to apply the macro stress-testing approach to estimate the stability of banking system of China in extreme cases.In order to test the overall credit risk of loans of China's banking system, a macroeconomic credit risk model is designed, including a multiple linear regression model describing default probability, and a set of regression models describing macroeconomic environment. Studies show that bank loan default rates and key macroeconomic factors (GDP growth, inflation, loan interest rates and real estate price index) are related. Then stress tests are implemented one by one according to different shocks. The results showed that most banks continue to profit even at 90% confidence level when estimated risk of loss, reflecting a moderate credit risk in the banking system. However, if confidence level rises to 99% when estimated risk of loss, the banking system will face significant losses.In order to analyze the impact of financial asset prices on the banking system, this paper develops a macro stress-testing framework to assess liquidity risk, credit risk and market risk. Firstly, using the Monte Carlo method to simulate market risk path generated by the financial asset price shocks; secondly, using Morton model to analyze the linkage between market and default risks of banks, while the linkage between default risk and deposit outflows is estimated econometrically; Contagion risk is also incorporated through banks'linkage in the interbank and capital markets. Finally, the framework is applied to a group of banks in China, based on publicly available data as at the end of 2008. Its test results show that: the liquidity risk of the bank system is very low, the probability of no bank default is 99.15 %, and the entire bank system is stable.
|
PDF Full Text Request