Credit Risk Transfer And Financial System Stability

The financial system optimize the allocation of assets and has other important economic functions for the entire economic system, on the other hand, enormous harm often occur on economic growth because of the outbreak of the financial crisis. Risk management is one of the most important economic functions of the financial system. Risk transfer is an important way of managing risk to get optimal allocation of risk for financial system. Banking system is an important sector of financial system, and its main risk in operation and management is credit risk. Before the credit risk transfer market appeared, commercial banks can only continue hold loans after it was loaned, credit risk management is mainly depended on credit examination, supervision, reduce the concentration of credit and other means. The emergence of credit risk transfer market make commercial banks can make their own need for portfolio management of credit risk transfer, and thus more flexibility for credit initiative risk management. Moreover, the credit risk transfer market also provides new investment channels for non-bank financial institutions; improve the breadth and depth of financial markets, and allocation resources more rational in the financial system.However, on the other hand, at the micro level, within the financial system risk transfer may increase the efficiency of banking financial institutions, but at the macro level, does the internal risk transfer in the financial system strengthen the financial stability is still a very uncertain issues. Does credit risk transfer increase the overall systemic risk in financial markets, or increase the flexibility of financial markets and reduce its systematic risk, in-depth study is needed on this question. Especially now credit risk transfer products become more complex, leveraged, and in the sub-prime crisis background, the problem is more importance and urgency.In this paper, firstly, credit risk transfer products and the research status of the system is introduced, at present the theory of credit risk transfer on the stability of the financial system has no consistent point of view, In other words, credit risk transfer on financial system stability and existence of both positive and negative effects. Next the situation and characteristics of the participants on the credit risk transfer market is described, and by building models based on the conditions with the characteristics of China's banking industry credit risk transfer market for a hypothetical study. Foreign existing research in credit risk transfer analysis assume that banking sector and insurance sector are perfectly competitive market, in this article we assume that in credit risk transfer market the insurance sector is a perfectly competitive credit risk protection seller, while the banking sector because of its basic features do not have full competition. Through this model to validation in this case, the credit risk transfer market is also can improve the effectiveness of the banking sector, by solving the model, found that under the assumption that there is solution, that shows under the characteristics of financial markets of China that there is appropriate credit risk transfer methods. However, the reality of the financial market and credit risk transfer market is extremely complex because of the diversity of participants and products. So after reasoning the model, the paper used the development of credit risk transfer market in South Korea after the Asian financial crisis and the CRT market of American before and after the U.S. subprime mortgage crisis as examples of CRT market to show how it benefits the financial market stability and development. At last this paper summarizes the regulatory status, the need for the development on credit risk transfer market in China. Further explanation in the China's financial system, the appropriate credit risk transfer arrangement is also beneficial to the stability of the financial system.