Empirical Study Of Commercial Banks Credit Risk Stress Testing

Since 2008, the financial crisis has swept from the U.S. banking sector to all economic entities of the world, and caused huge losses both for the banking sector and the real economy. After the financial crisis, strengthening risk control has become the consensus of every country's banking regulatory bureaus, so how to control the credit risk commercial bank faced and reduce the losses in extreme economic scenarios such as macroeconomic crisis have become a very valuable research topic. Stress testing is a technique aimed to calculate the financial institutions'asset quality and profitability after extreme events occurred. The deposit taking and loan lending nature of commercial banks have decided the credit risk on loan assets is the main risk banks faced, and the loan-based risk is also the target area stress testing focused. In recent years, with the Chinese real estate development and the continuous progress of urbanization, especially after the financial crisis, in order to rescue the real estate industry, the government required major commercial banks to increase support for housing mortgage market, commercial banks have accumulated excessive housing mortgage loan assets after the crisis, the credit risk for Chinese banking industry has reached a historically high level. In order to control credit risk, China Banking Regulatory Commission requires that all commercial banks enhance credit risk stress testing, especially on the mortgage loans accumulated during the crisis. The main purpose of this paper is to study how to apply the method and practice of stress testing in Chinese banking industry, and how to apply the results of stress testing in commercial banks'daily risk control and strategic management. The research findings are crucially important nowadays,3 years later of the outbreak of crisis.Unlike the mature methods of stress testing have been applied to banks in most developed countries, stress testing is still a fresh tool for Chinese banking industry risk management business. And the academic research in this arena is scarce, so one important purpose of this paper is to introduce the procedure and structure of stress testing. Another target of this paper is to test the availability of a new model based on the sample of an A-share listed shareholding commercial bank (called A bank). Finally, based on the conclusion of credit management condition of Chinese banking industry and empirical study result, this paper offers several suggestions about how to improve the standard of credit risk management of commercial banks.