Market Risk Management Research Of Chinese Commercial Banks Based On Stress Testing

If we only draw one lesson from the financial crisis in2007, that is, we should pay more attention to the stress test, rather than a mechanical application VaR model. Because the stress testing can analyze the asset portfolio’s extremely adverse effect on market conditions, quantify the risk exposure of banks in such extreme case, and establish the functionality of the risk factors associated with the bank’s financial condition, international banking and risk management organization focus the current market risk management on stress testing. Now stress testing is still in the exploratory stage in China. With gradually opening up in international financial markets, as well as the expansion of the scale of Chinese commercial banking, commercial banks are facing a growing threat to liquidity risk. In recent years, China Banking Regulatory Commission has gradually put management of market risk on formal agenda.This paper describes the application of the stress testings in the market risk, while taking Bank of China as an example. At the same time, it concerns about the fluctuations in the market price which objects to fluctuations in interest rate and exchange rate. It studies the impact on the bank at last. This article is divided into five parts.The first part describes the theoretical and practical background study based on stress testing for market risk, meaning of market risk as well as the significance of the market risk management, followed by the introduction to test methods of application of pressure at home and abroad the status quo of the market risk, and finally introduce the study of this article content and methods, innovation and inadequacies.In the second part, commercial banks commonly use VaR as theoretical point to prevent market risks. Although it is a common method of risk management, it did not predict the tail risk in extreme cases occurs. So risk management needs stress testing as a tool. Finally, it stresses the importance of stress testing on banks’risk management and the method and steps of stress testing.In the third part, it designs the characteristics of stress testing to test basic management model and operational procedures. This paper based on the re-pricing model and maturity models to analysis interest rate risk and exchange rate risk through stress testing.The fourth part is empirical analysis of Chinese commercial banks market risk stress testing. The article is based on the data in2011Annual Report of the Bank of China, re-pricing model and the maturity model based on the deposit and lending rates, and exchange rate during2002-2011in historical scenarios way. The result could observe pressure shock under the market risk and analysis of the tolerance ability of the Bank of China.Finally, according to this study of market risk management should continue to vigorously promote stress-testing practices, sound risk management policies and procedures to enhance the ability of commercial banks to withstand market risks, and pointed out that more real, actual, practical stress testing method is the future direction of research...