Research On Operational Risk Management In Commercial Banks Based On Internal Control

The risk management in China’s commercial banks has been focused on credit risk and marketrisk for a long time, ignoring operational risk that also exists objectively and occurs a lot, so it is notthe true enterprise-wide risk management. The new Basel Capital Accord (Basel Ⅱ) broughtoperational risk into people’s vision, and integrated it into the framework of bank’s capitalmeasurement and supervision. Different from credit risk and market risk, operational risk covers allbusinesses and operations induced by many complex factors, and has a closer relationship with thebank’s internal control. But in the real environment and the bank’s management practice, internalcontrol is always separated from the identification, evaluation, measurement and control theoperational risk. There are some problems in the existing academic research on operational risk, e.g.,lack of an unified theoretical system on operational risk management of commercial bank, researchmostly from the perspective of the microscopic theory on finance, a partial and biased analysis inconstructing the index system to evaluate operational risk, mostly adapting the external loss data tothe measurement of operational risk, the accuracy and effectiveness of measurement for operationalrisk is not ideal. With the increasingly development of operational risk events in recent years,operational risk will be paid more and more attention by the regulators and managements of ourcountry’s commercial banks, who have an urgent need for the improvement of theoretical researchand practical management level of operational risk. The thesis focuses on the frontier and hot issues,and its structure is shown as below:First of all, the thesis discussed on the existing domestic and foreign academic materials onoperational risk management, and analyzed the main drawbacks in existing academic research indetail.Second, the basic theory on operational risk and internal control summarized and perfected,including definitions, characteristics, classification, the three elements of operational risk and theinterrelationship among elements. Also, some theory is analyzed that can explain operational riskmanagement, the framework of operational risk management, the elements, tools and evaluationmethods of internal control, and emphasized on the study of the relationship between the fiveelements of internal control and the framework of operational risk management.Third, by reviewing the literature, and mainly using such methods as field investigation, expertinterview and questionnaire survey, a wide range of data were collected and these statistical data are classified. On this basis, the thesis compared and analyzed the characteristics and present situation ofoperational risk and operational risk management in the domestic and foreign commercial banks, andpointed out that gap between China’s commercial banks and foreign active banks in the theoreticalresearch and practice of operational risk management.Fourth, on the basis of identifying and analyzing the factors that have effects on operational risk,a comprehensive index system of evaluating the operational risk of commercial banks was established,which considered such factors as personnel, technology, business processes, external events, theprocess and results of internal control, and further the evaluation indexes were screened andempowered. Next, the thesis constructed a comprehensive evaluation model on operational risk interms of fuzzy comprehensive evaluation method, and used the related loss data of Q branch of Hbank during2005~2012to illustrate the application and classified management method ofoperational risk assessment system.Fifth, the thesis analyzed the collection scope of operational risk data and distributioncharacteristics of loss data of Q branch of H bank, compared the different measurement methods ofoperational risk and their advantages and disadvantages. Then, the thesis analyzed the feasibility ofCvaR-POT model and its specific measuring process by showing the statistical characteristics of thenearly eight years of operational risk loss data, studied on the necessity and rationality of correctingthe results of the measurement model, further put forward the idea of using operational riskassessment results to correct the results of the operational risk measurement model，and analyzed andexplained the points that have been improved compared with the current research findings. Themodified measurement method takes into consideration the influence of internal control, improves theaccuracy and effectiveness of measurement of operational risk and save the economic capital ofcommercial banks, avoiding the drawbacks of using some prevailing models one-sidedly.Finally, some specific strategies and measures to control operational risk in our country’scommercial banks were put forward according to the comprehensive evaluation system of theoperational risk.