A Study On Formative Mechanism And Measuring Models Of Commercial Nanks' Operational Risk

Commercial bank operational risk is a concept of risk proposed after credit risk and market risk. From 1996, BIS had changed document for three times, and the final formed in 2004, the New Basel Accord. In the new accord, operational risk had been incorporated into the venture capital of calculation and regulatory framework, and was carried into execution from the end of 2006. Compared in terms of market risk and credit risk, operational risk has its own characteristics, so the existing market risk and credit risk of the theoretical models and methods can not be used directly. Therefore domestic and foreign scholars did researches to operational risk using the operational risk measurement models and operational risk management theory. However, the research of the root causes of operational risk and the formation mechanism need deeply investigation and cause analysis need various amplification; Research on operational risk management essential operational risk management systems are based on one or more nodes, operational risk management system need further improved; Quantitative research base is weak, data are incomplete and not systematic, and failed to establish a dedicated operational risk loss database. In this paper, the basic principles of behavioral economics are used to study of the formation mechanism of operational risk, and combining with the actual data, Bayesian statistical inference was used to research China's commercial bank operational risk. And on this basis, how to build operational risk management system of commercial banks has been studied. This research expands the studying perspectives in the view of behavioral economics, with visual angels of the judgments and decision-making under uncertainty. This paper enriches the application fields Bayesian statistical inference in the commercial banking operations, and has some academic and practical significance.This paper made explicit overviews for some concepts, such as the origin of the Basel Accord, the New Basel Accord, the definitions of operational risk, characteristics, categories and the overviews for the Basic Indicator Approach, the Standardize Methods and the Advanced Metrology which was used in operational risk measuring, that lays the foundation for the latter research. And then, various operational risk cases which occur in Chinese commercial banks were collected. In addition, make a classification and analysis for Chinese commercial bank's operational risk loss data accordingly to the Basel Committee's classification. On that basis, using the basic theory of the behavioral economics to study the operational risk's mechanism from aspects with the non-rational judgments of the knowledge representation bias, the belief in loyalty and confirmation bias, the availability bias, the anchoring effect and the behavier, and with the non-rational decision-making of nonlinear probability of conversion and making based on the reference point. Further this paper makes a comparison between the Basic Indicator Approach, the Standardize Methods and the Advanced Metrology in order to overcome the defect of lack of data, and put forward the Combination of loss distribution approach of advanced method, using the Bayesian statistical inference to measure the operational risk and to study the risk measure of China's commercial banks'operational risk. This paper makes use of the 1994-2002 data which comes from FanXin and YangXiaoguang's papers to obtain the prior distribution of the loss frequency and the amount of loss distribution parameters then use the 2003-2007 data to get the posterior distribution and combine the Monte Carlo simulation giving the advice for capital regulatory. Finally, on the basis of the COSO published the basic idea of ERM, combining the characteristic of the risk's occurrence, this paper studies the construction of operational risk management system and makes a deeply research for the internal control, Classification incentive system, emergency plan and capital allocation, hoping to give a useful reference for commercial bank's operational risk management.In this paper, innovation is reflected in:â‘ Using the basic principles and methods of behavioral economics, and based on depth analysis on the judgments and decision-making under uncertainty, the formation mechanism of China's commercial banks operational risk come to follows: When bank staff are facing non-rational judgments and decision-making under conditions of uncertainty, operational risks were easy to appear because of internal fraud and internal error. This research expands the studying perspectives in the view of behavioral economics, with the visual angels of the judgments and decision-making under uncertainty.â‘¡Using the basic principles of Bayesian inference, combining the basic idea of Loss distribution, measurement has been done to commercial bank operational risks of China. And computation and capital Allocation of commercial bank operational risks have been done by combining Monte Carlo Simulation and VAR technology. In the demonstration, 174 commercial bank operational risk events (227 after collated) publicly reported by media between 2003 and 2007 have been collected for the Empirical Analysis. Using Monte Carlo Simulation this paper did 1000 times simulation, and got the operational risk Capital allocation should be 69.79 billion Yuan. These research enriches the application fields Bayesian statistical inference .â‘¢Based on the basic idea of ERM published by COSO, combining the current characteristics of operational risk of commercial banks, this paper incorporates the internal control, Classification incentive system, operational risk emergency system, model measurement and capital allocation in to the risk management system, this paper constructed the commercial banks operational risk management system. This paper divides Commercial banks operational risk management system into seven sub-systems, and put forward methods, ideas, and countermeasures of commercial bank operational risk management and prevention separately from the internal control, classification incentives, capital allocation, operational risk emergency system, etc. This study has some reference for the risk management of commercial banks while giving a new visual angel to manage the risk for Chinese commercial banks.