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A Study on Stress Test of China’s Commercial Banks’ Liquidity Risk

Author: LiangTao
Tutor: XiaHongFang
School: Zhejiang University of Finance
Course: Finance
Keywords: Liquidity Risk Stress Test Default Time Liquidity gap multiples
CLC: F224
Type: Master's thesis
Year: 2012
Downloads: 325
Quote: 0
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Abstract

Since The Finance Crisis of 2008, the globe economic is in the doom, further more the debt crisis of Greek have a serious impact to European area. All these shocks takes great threaten to the finance system of the whole word. After inter the WTO China have been an important elements in the globe economic system, however, the change of the globe economic must have an impact to China itself too. The banks are in the important position in the economic system, and more sensitive to any change of the economic. Diamond and Dybvig had pointed out that modern commercial bank in the economic system plays a market maker or the role of middlemen. Once the middlemen have any crisis the system would collapse.At the present time, the inflation of China has been increased, the Real Estate are also in fluctuation. The government of China has increased the Deposit-reserve Ratio many times to withdraw currency for decrease the fluctuation. Further more, many companies have threatened from lack of liquidity, once these companies insolvency would induce the banks which have internet with these companies lost their money. So the banks of China have great Liquidity Risk, and manage these risks are become more and more important in the present of China.Despite it is small chance appear, the extremely event can take serious effect to banks. Extreme events once happened to the banks, will give great pressure to the bank’s liquidity, Banks are there or can exist, mainly lies in the bank can provide liquidity, and economic system of the bank itself liquidity will hardly dry up. Once the liquidity of bank has dry up, the deposit will outflow, therefore, extreme events should get attention.There have some standpoint in this paper as follows: Firstly, the studies of the effects of extremely event accident to banks are very important. Secondly, the probity of these events is less important, it is enough that there has some probity of these events will happen. Thirdly, banks could not and can not take redundant currency to cover the effects of the extremely event. There are two reasons of banks keep currency, on the one hand it can meet the demanded of banks in routine works. On the other hand the currency can give some protect to banks when these extremely accident happened, and it also can prove sufficient times when banks have been shocks by these accident to cope these crisis. So, it is important to calculate the time when these currencies are exhausts.In this paper, we analyzed roots of the Liquidity Risk, the performance of the Liquidity Risk of banks, and give the procedure to take Stress Test. In this paper we build two models to measure Liquidity Risk. We also give an model to calculate the times when the currencies which the banks keeps are exhaust. As there is no stander to pick factors that can influence the liquidity of banks, we chose Factor Analyze to find these factors.Through the analysis, we can see that the Asset liability ratio of banks in the head time can determent the Default probity, and the Default probity in the head time of banks can induce the liquid outflows in this time. So the Asset liability ratio of banks at this time are change again, and it affect the Default probity again. Through these cycles we can find the time when these currencies are exhausts.

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CLC: > Economic > Economic planning and management > Economic calculation, economic and mathematical methods > Economic and mathematical methods
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