Research On The Effects Of Internal Control On Risk Prevention For State-owned Commercial Banks

Banking is the industry of risk management and risk prevention is one of the core content of state-owned commercial bank management. State-owned commercial Banks are facing three types of risks: credit risk, market risk and operation risk.Internal control is the key of risk prevention strategy. According to the statements of COSO committee and the Basel committee, bank internal control generally are divided into five elements: Environment optimization control, risk identification and evaluation, system implementation, information and communication,supervision and feedback. Therefore, how to realize risk prevention in the internal control environment is a great challenge to the state-owned commercial Banks.The big four state-owned commercial Banks are the main body of China's banking industry and are the main force of the implementation of China's monetary policy. Compared with the western commercial Banks, risk prevention ability of the big four commercial Banks is weaker, resulting in a large number of non-performing assets and bad debt losses. At the same time, in the internal control and risk prevention issue, the big four commercial Banks are more fragmented, lacking of mutual communication, exchange and reference, and curbed the exerting of the internal control function. The people's bank of China and CBRC have both consistently advocated that as for internal control and risk prevention, the bank should learn from each other and improve these together. On the contrary, currently the big four commercial Banks have slight effectiveness.Because of this, from the funding of the national social science fund project (15 bg1079) "Research of the effectiveness of governance of China's listed banks ", the paper combed the thread of internal control and risk control for the state-owned commercial banks and build the model of internal control so as to promote the effect of preventing risks . Based on the sample data of the big four commercial banks, by applying multiple regression analysis and structural equation model testing method,and by using Liserl8.7 and SPSS15.0 software, the paper carried on the comparative test respectively. They not only reveals the micro-differences in risk control efficiency for four big commercial Banks, but also reveals the internal control behavior functional difference for the big four commercial Banks, and discovered the advantages and shortcomings of all kinds of commercial Banks internal control behavior, so as to put forward to the direction of improvement and optimization of the internal control, and all kinds of strategy for commercial Banks to borrow. Thus provides a theoretical guidance in the cultivation of ability of risk management for the big four commercial Banks.The innovative content of the study includes the following four aspects based on the above research methodology and processes:1) By using multiple regression analysis and according to the comparative study,the paper found that the big four state-owned commercial Banks are different in all kinds of risk control and compound risk control so that it may provide theoretical support for the big four commercial banks to borrow experiences from each other.Specifically: (1) For credit risk control, the bank of China is in a leading position, the industrial and commercial bank of China follows, and agricultural bank of China is the third, and China construction bank is the weakest; (2) For market risk control, the bank of China is in a leading position, China construction bank follows,and industrial and commercial bank of China is the third, and the agricultural bank of China is the weakest; (3) For risk control of operation, the agricultural bank of China is in a leading position, the bank of China follows, and the industrial and commercial bank of China is the third, and China construction bank is the weakest; (4) For overall risk control, the agricultural bank of China is in a leading position, the bank of China follows, and the industrial and commercial bank of China is the third, and China construction bank is the weakest.2) By using structural equation model and according to the comparative analysis, the paper found that China's four major state-owned commercial Banks are obviously different in the function of internal control behavior. Each bank has its own advantages in its behavior function, but in the mean time they also have their own shortage and insufficiency, thus they can borrow form each other and improve together.Specifically: (1) The bank of China is in a dominant position in internal control environment construction for the promotion of credit risk, and it is worthy of a reference for other Banks. (2) The bank of China is in a dominant position in the system implementation in the promotion of credit risk, and it is worthy of a reference for other Banks. (3) The bank of China is in a dominant position on the system implementation for the promotion of market risk, and it is worthy of a reference for other Banks. (4) The agricultural bank is in a dominant position in monitoring and feedback for the promotion of operational risk control, and it is worthy of a reference for other Banks. (5) The agricultural bank has a significant disadvantage in information and communication for the promotion of market risk control, and it needs to learn from other Banks.3) Through comparison and analysis, the paper found that the state-owned commercial Banks internal control construction has some aspects that are seriously lagged. This helps to pointed out the direction of the strengthening of internal control of state-owned commercial banks, and forwardly puts forward the key strategy for state-owned commercial Banks internal control construction.Specifically: (1) The internal control environment construction are lack of function seriously on promoting the credit and market risk control. As a result, the internal control environment construction's main goal is to deepen the prevention of credit risk and market risk; (2) The execution of system on credit risk and market risk control are serious lack of function, thus, the main goal for the execution of system is to deepen the credit risk control and risk control; (3) Supervision and feedback are all seriously lack of their function in operational risk control, therefore,the main goal for supervision and feedback is to deepen the prevention of operational risk control and to improve the level of operational risk control.4) Through the comprehensive analysis of multiple regression analysis for risk prevention differences and the structural equation model for internal control difference,the paper puts forward some strategies of internal control of state-owned commercial banks so as to improve the promotion f risk prevention.The main reference strategies include: (1) The Industrial and commercial bank,construction bank and agricultural bank should all actively absorb the governance experience of bank of China; (2)The industrial and commercial bank, construction bank and agricultural bank should learn self rating system from China bank; (3)The industrial and commercial bank, construction bank, and China bank should learn the mechanism of the operation risk supervision from Agricultural Bank of China;(4)The construction bank should strengthen the internal audit of credit risk prevention and supervision.