Research On The Measurement And Application About The Operational Risk Of Chinese Commercial Bank

As banking industry is production of human being's economic activities:eoples have been paying more and more attention to it as time going. Before 21st century, it is well known that credit risk and market risk are the main risk and both banks and supervision organizations have invested a great deal of man powers and money in developing analysis and econometrics models. Recently, another type of risk draws attention of the industry and such risk is very different from the two old types as its probability is lower but will result in great economic loss once take place. And peoples named it as operation risk because almost all such risks are mainly caused by daily operation of peoples within banking industry. In June 1999, in the first draft of BASEL Accord(Basel II),together with credit risk and market risk, operation risk has been calculated into the framework of capital adequacy. In the updated version of Basel Accord published in June 2004, the operation risk of banking industry has been formally put in the structure of risk capital calculation and supervision. This version will be implemented globally by 2006.As operation risk becomes drawing attentions of banking industry recently,banks have just started to calculate the operation risk adequately. Almost at the same beginning, domestic banks have begun to explore relevant method of such calculations. According to BASEL Accord, only calculation adequately of the operation risk can help allocate appropriate risk capital for operation risk and can secure high ratings from international rating agencies to participate global banking competition.This study begins with opinions of the updated BASEL Accord, discusses causes, characters and types, explores methods of risk measurements applied to domestic commercial banks, and calculates operation risk of individual commercial bank according to data collected. Such study is very updated and is of both theoretical and practical. The innovative points resulted from such study are as follows:I. According to requirements of BASEL Accord, it analyzes and summarizes the characters of operation risk of domestic commercial banks, and studies deeply on measurement approaches of operation risk on the basis of practice and application of models and difficulty in collecting data. It points out that the most direct and effective approach for domestic banks to calculate operation risk is general loss distribution approach, which is an integration of loss steps and relative Monte Carlo Method,in accordance with current management level and direction of reform of domestic commercial banks.II. It also studies the relativity and potential insufficiency produced in calculation of operation risk. Regarding the relativity of data of operation risk, it analyzes the basic supposition of LDA Model, calculates the range of relativity and concludes to use Copula index to measure the relativity of loss distribution of multiple operation risks. For insufficiency of data, it tries to mix the frequency data of operation risk by applying the reliability theory of insurance industry.III. For the first time in China, it measures operation risk of individual commercial bank and allocates capital, with empirical study by applying general loss distribution approach with Monte Carlo Method and VAR Technology. In 1990-2005, it collected 161 original data (reaching 365 after making them in order) and calculated 100,000 times using Monte Carlo Method. This study completed an empirical calculation and concludes for the first time in China that the capital allocated for operation risk of individual commercial bank is RMB10.7 billion by applying the process of data collection, analysis of characters of data; establish the model and simulation of Monte Carlo Method.