Research On Operational Risk Prevention And Management Of China's Commercial Bank

In the process of risk management, there is a common concept that the effects ofrisk managemento nly rely on the biggest weakness. Financialm arket is experiencinggreat changes, and also ceaselessly pushing financial institutions to immature new riskfields, which have evolved into the weakest tache of risk management. After thecontinuous eruption of such new fragile issues, new risk management frameworkshould involve these new risk fields. Upon recent years, this track of such evolvementis very apparent, financial institutions' focus on risk management are extending tomarket risk, even current operational risk from preliminary credit risk.With the faster global economic integration in the past years, banking businesseshave been expanding themselves in scope and scale. Consequently, the operationalrisk becomes an imperative problem to commercial banks. Operational risk has causedso many serious cases across the globe that Basel Committee stipulated in BaselⅡ(June, 2004) that operational risk should be covered and a proportion of capital must beset aside for the purpose of its prevention. Domestic banks are facing the same problem.Since the beginning of 2005, to the surprise of the banking, a series of seriousincidences of cases occurred, a lot of sum being involved. In other word, theoperational risk confronting China's banking industry is threatening the soundoperation of China's financial system and the interest of depositors, which has greatlydestroyed the public image and confidence on China's banking industry, furthermore,incurred some negative impacts ont he reconstmctiono f joint stock system andinternational competiveness of China's state-owned commercial banks. The operational risk has gained the attentionf rom China's Banking Supervision Committee. Thecommittee published a notification on strengthening the prevention of operational risk,in which the committee explicitly put forward the concept of operational risk.The dissertation, based on the opinions on operational risk definition andmanagement of BaselⅡ, intemationala ctive banks, professionals and academiciansand China's economic and financial practices, first redefines and reinterprets thecategory and connotation of China's operational risk. Then, the author summarizes andanalyzes the economics bases and institutional roots of causes conducing operationalrisk. as for the problems during the transition of economic system, the author points outthe drawbacks of China's commercial banks in their management of operational risk,which constructst heoretical analyzing framework for exposing the operational riskbirthing mechanism. Second, combining the series of operational risk cases in domesticcommercial banks occurring in recent years, thea uthor analyzes the statuses andcharacteristics of operational risk and introduces the practices and trends of operationalrisk management, based on which the author analyzes the drawbackso f China'soperational risk management frameworka nd searches the researching routes anddirection. Finally, rooted upon deep analysis on the major obstacles of operational riskmanagement of China's commercial banks and using successthl operational riskmanagement experiences of overseas advanced commercial banks, the authorrecognizes the establishment of effective management system of operational risk ascut-in and breakthrough point, then comes up with relevant proposals on constructingsuch system from four arrangements, which should reinforce all-around riskmanagement, better internal control and external supervision, therefore arriving atthe goal ofm anagement of operational risk and making the commercial banks morecompetitive.