Macro stress testing in the banking system of China

Jiang, B., Philp, B. and Wu, Z. ORCID: 0000-0002-1707-0238, 2018. Macro stress testing in the banking system of China. Journal of Banking Regulation, 19 (4), pp. 287-298. ISSN 1745-6452

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In this paper we develop a framework for macro stress testing of China's banking system. Our estimates of the correlations between banks' stability indicators and macroeconomic factors establish significant relationships between the non-performing loan ratio and key macroeconomic variables, such as GDP growth, the retail price index (RPI), the unemployment rate, total fixed investment, the money supply, interest rates, and exchange rates. Further, results from the macro stress tests show that robustness, or otherwise, of the banking system is highly dependent on the source of the potential risk. Our value-at-risk tests suggest that (at a 99% confidence level) the Chinese banking system is robust with respect to interest rate shocks. However, GDP growth and exchange rate shocks exhibit a profound negative effect, indicating that significant losses become likely. These results should inform investors, policy-makers and regulators with regard to loss-limitation in China’s banking system.

Item Type: Journal article
Publication Title: Journal of Banking Regulation
Creators: Jiang, B., Philp, B. and Wu, Z.
Publisher: Springer
Date: November 2018
Volume: 19
Number: 4
ISSN: 1745-6452
Divisions: Schools > Nottingham Business School
Record created by: Linda Sullivan
Date Added: 30 Oct 2017 12:41
Last Modified: 09 Dec 2020 16:08

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