Credit Risk Stress Tests Of Commercial Bank

Commercial bank as one important component of national economy is the essence ofeconomic development of China. Considering the macro-economic situation ofChina，its commercial banks are facing with huge challenges in different fields suchas credit risk，internal control etc. The explosion of the global financial crisis triggerspeople’s reflection on the traditional bank risk management technologies. Under suchcircumstance，stress tests as the measure employed in estimating the credit risk ofcommercial banks，could figure out with great efficiency the drawbacks in credit riskmanagement of commercial banks of China，so as to make its significance in findingand settling problems with emphasis and setting up a comprehensive commercialbanks risk management system.The credit risk theories is made，and then it makes analysis on the causes leading tocommercial bank credit risk on the basis of the current situation of commercial bankcredit risk and it figures out the problems in credit risk management in commercialbanks of China. Based on the above，it introduces the method of stress tests and itsapplication in credit risk estimation，and it sums up the indicators in measuringcommercial bank credit risk，the indicator systems and scene designs required by thestress tests. The indicator system in conduct employing stress tests for commercialbank credit risk is established. At the meantime，by the Wilson model，a empiricalresearch on credit risk in commercial banks of China is conducted. The researchshows that the rate of inflation，price index of real estate and the rate of interest arenegatively correlated with the stability of bank system.The main innovations of this paper is that it quantifies the risks in consideration ofproblems in domestic commercial banks risk management and it proposes theeffectiveness of conducting stress tests for credit risks in commercial banks of Chinaand a restrictive analysis is made. In accordance with the development of China，theprice index of real estate is introduced as one analysis indicator. It helps complete thestress tests for credit risk complying with the situations of commercial banks ofChina，and improve the accuracy of the model. Meanwhile，it helps develop thescientific stress tests suitable for their own，propel the converging process with theworld and promote risk management practice of financial institutions of China and thedevelopment of financial market.