Commercial Bank Operational Risk Assessment And Management Of Internal Audit

In recent years, there emerges many major financial events among China's commercial banks, which indicates that China's commercial bank risk management and internal control mechanisms is weak and the operational risk is neglected. The ongoing financial events and financial crisis make financial institutions and regulatory authorities realize that to focus only on credit risk and market risk can not effectively control and prevent risk events, the banking sector's risk management must be reformed. Since the release of the new Basel Capital Accord in 2004, operational risk is internationally recognized as one of the three major risks in commercial banks, which parallel to credit risk and market risk and is included in comprehensive risk management areas. With the arrival of the implementation of the New Basel Capital Accord in China's commercial banks, China's financial institutions and regulatory authorities have gradually paid attention to operational risk.At present, the domestic and foreign scholars has done a considerable degree of research on operational risk, but there are some shortcomings of these studies, which is that lack of the knowledge from a commercial bank's own point of view of operational risk management, just to stay in the introduction and elaboration of the New Basel Capital Accord and lack of their own critical analysis, the research which can turn the spirit of the New Basel Capital Accord applied to China's commercial banks operational risk management practices is less. This paper attempts to analyze the operational risk assessment and management from the perspective of the internal audit in commercial banks, with a view to provide useful suggestions for our commercial banks'operational risk management practices.In this paper, we put forward the new perspective of internal audit involving in operational risk assessment and management, through the analysis of the reality in China's commercial banks, with the starting point of commercial bank compliance management. Then we introduced internal audit methods and models for identifying, assessing and managing operational risk, based on the analysis of the principles of internal audit and operational risk management. Finally, we analyzed the application of internal audit in assessing and managing operational risk through a specific case studying. This paper is divided into five parts: The first part is the Introduction, introduced the present research results and illustrated the significance of the research in this paper; the second part is the analysis of the status quo on operational risk in China's commercial banks and the formation of operational risk. Then we conclude that internal audit can make up for the problem of inadequate operational risk identification and assessment in China's commercial banks, and become an important part of operational risk management; the third part is the analysis of principles of internal audit and operational risk management. We put forward the theoretical basis of internal audit and operational risk management, including financial fragility theory, moral hazard theory and principal-agent theory, then we analyzed the relationship of internal audit and operational risk management and the necessity and feasibility of internal audit participating in operational risk management; the fourth part is the studies of internal audit approach in operational risk, including operational risk environment assessing and operational risk assessing and managing; the final part is a case analysis. We specified the applications of internal audit in the assessment and management of operational risk through the case.