A Research On The Application Of Credit Risk Stress Tests Of Commercial Bank

After the financial storm, stress test become the hot research topic. Based on the requirementof Basel2 and the FSAP, Chinese commercial Banks must improve their stress test ability.Through the research of the working paper of BSBC, IMF, BIS, ARPA , and so on, this papersummarized the stress test method.Currently, stress testing method can be divided into the model method and non-modelmethod. APRA use the non-model method to stress testing the housing loan portfolios in 2006 byusing historical data to establish credit risk evaluation matrix. This method has a lower demand ofdata, but it is not good for forecasting, so more and more commercial banks use model method tostress testing credit risk. Model method can be divided into three kinds. One kind is based onMerton model, Drehmann, Manning and Pesaran et al research the relationship of credit-riskdefaults rate and macro macroeconomic variables by Merton model in 2004. In 2008, Michael C SWong used History-Based Stressed to stress test base on Merton model and KMV model. Thesecond kind is based on Wilson model, Finland Banks and Austrian bank in built up a stresstesting framework based on Wilson model. Hong Kong financial supervision and administrationexpand this framework. The third kind is based on the model of BaselⅡ. BaselⅡsuggests usingstandard method and internal ratings-based approach to measure credit risk of commercial Banks,the two kinds of credit measurement method can also be used to stress test.According to China's situation, this paper adopts the method of History-Based Stressed PDand IRB model to stress test the credit risk of five commercial bank ,such as Agricultural Bankof China , Bank of China ,Bank of Communications and so on. The reason of choosing the fivebanks is because their risk level is different, their credit risk level are respectively in high,mediumand low. The empirical results show that ,the ABC is the most sensitive bank to pressure in fivebanks.The economic pressureit most likely impact it . Besides, through comparing the results ofHistory- Based Stressed PD method and the IRB method, we can find that the IRB method is moresensitive to pressure.the IRB Stressed PD is much bigger that History-Based Stressed PD. Thisimplies that capital charge in IRB will sufficiently cover the stressed loss if we face extremecases.Currently there is no standard methodology to perform macro stress tests and no standard toevaluateself-reported stressed estimates. Some banks and bank supervisors have attempted to buildeconometrics models for macro stress tests. We should adopt history-based stressed PD methodand IRB method to complement econometrics models.