The Analysis For Problems & Correction Of Operational Risk Management Of Bank N

With the boom of economics the reform of the banking industry of China has being pushed forward. Recently there emerge two trends in the reform. The first one is that state-owned commercial banks are preparing for going public. China Construction Bank as well as Bank of China is going to be listed in one or two years in domestic stock exchange market or abroad. The others are also waiting for the appropriate time to do so. Lowering the bad debt rate is a crucial challenge for being a listed bank, and also the banks are urged to establish good corporate governance. The big issue for the banking industry of China is to enhance internal control to avoid or mitigate risks. Based on the trend of international banking industry development as well as current situation of risks New Basel Capital Accord treats the operational risk importantly among market risk, credit risk and operational risk. As a matter of fact it was the operational risk that resulted in the credit loss of Bank N, an oversea branch of Bank C of China, and the crash of famous Baring Bank. Another tide is that banks in China are eager to participant the international competition under the background of the entry of WTO for China and the gradual open of financial service market of China. Some of them have opened branches and agencies abroad which are conducting business in countries, areas and cities where there're developed financial industries, sound laws and regulations. Therefore to comply with the local regulation and law in new environment to survive and develop steadily is a new challenge formost of these Chinese banks. Compliance is also a field of operational risk. The banking industry of China has to take operational risk management into account due to the needs of reform for being listed, internationalization and further development.As an oversea branch opened in the world financial center in 1980's the initial progress was fast and performance of Bank N was satisfactory with the good relationship, the fast growth of mutual business and exchange of people between the two countries. However with the time being severe operational risk occurred, which leaded to huge credit loss in credit business during a relatively long time period due to the poor management of business, especially ignoring the management of operational risk. Eventually Bank N was punished by local regulatory administration and had to sign the Consent Order. According to the instructions from the head office Bank N has roughly underdone 3 years' correction of misconduct particularly in operational risk management.Since the first half of last year I have been assigned to work in Bank N as an expatriate and have a chance to take part in some of the correction work. In the outsourcing project for upgrading the core banking system according to a specific timeframe as required by the regulatory administration I was in charge of credit business analysis. I participated in the work for improving the centralized credit management and procedures for the control of limits and risks. I joined the disaster recovery drill and did the actual recovery work in the accident of local blackout. All of these experiences let me to learn more about in-depth operational risk management, moreover I began to consider the impact of Bank N event on the domestic banking industry.First of all this article introduces guideline on the sound practice of operational risk from both New Basel Capital Accord and Basel committee papers, the relevant theory of operational risk management, secondly describes the problems of Bank N and the Consent Order in detail, then analyzes the problems, the Consent Order and the overall correction work of Bank N under the guideline of Basel Committee. Finally gives comments on the correction work of Bank N and expresses my opinionon how to learn from the Bank N event and how to improve the operational risk management of oversea branches for the banking industry of China.