Credit risk and macroeconomic stress tests in China

Philip Arestis and Maggie Mo Jia ()
Additional contact information
Maggie Mo Jia: University of Cambridge

Journal of Banking Regulation, 2019, vol. 20, issue 3, No 1, 225 pages

Abstract: Abstract This paper examines the vulnerability of commercial banks in China to the changes in macroeconomic conditions by employing a macroeconomic stress test. We particularly focus on how the changes in housing market-related variables and the scale of shadow banking influence the credit risks of China’s entire banking system. Based on the result of a vector autoregression model, we proceed with a five-scenario analysis. Our main finding is the ability of shadow banking to absorb the credit risks of commercial banks rather than there being a spill-over effect, according to the data from Q1 2005 to Q2 2016. Moreover, the mortgage loan is risky to commercial banks during this period. In addition, our scenario analysis suggests that China’s banking system is relatively stable and that the Central Bank of China is capable of monitoring the credit risks of commercial banks using appropriate credit policies.

Keywords: Macroeconomic stress test; Vector autoregression; Banking system; Central bank; Shadow banking (search for similar items in EconPapers)
JEL-codes: E58 G21 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://link.springer.com/10.1057/s41261-018-0084-1 Abstract (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pal:jbkreg:v:20:y:2019:i:3:d:10.1057_s41261-018-0084-1

Ordering information: This journal article can be ordered from
http://www.springer.com/finance/journal/41261/PS2

DOI: 10.1057/s41261-018-0084-1

Access Statistics for this article

Journal of Banking Regulation is currently edited by Dalvinder Singh

More articles in Journal of Banking Regulation from Palgrave Macmillan
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().