Study Of Commercial Bank Operational Risk Management Process

Presently, the huge losses cases of financial institution caused by operational risk are frequently reported at home and abroad. Operational risk has become one of the major risks faced by commercial banks. Both the banking supervisors and financial institutions have paid great attention to the management and control of operational risk at an unprecedented degree. How to manage the operational risk effectively and reduce the losses have become an important issue. In response to this situation, The Basel Committee promulgated The Sound Practice for the Management and Supervision of Operational Risk in 2003 and the New Basel Capital Accord formally in 2004. In these two documents, the committee adopted operational risk into management frame and imposed new requirements such as measure and management on operational risk. Besides, operational risk has been defined definitely as the risk of direct or indirect loss resulting from inadequate or failed internal process, people and systems or from external events.Chinese banks have been open to the outside world, but due to the weak consciousness of operational risk, outward management methods and lack of experience, serious illegal cases have been frequently reported. These cases no matter caused serious economic losses in our country, but also weakened the social image of banks and brought social disorder. It has now been an urgent issue for the banking industry to face the operational risk, learn from international advanced management experience, get lessons from failure, improve management of operational risk and finally map out a scientific and suitable management system to resist risk in commercial banks. On the basis of deep research on the related operational risk theories, the thesis, combining with the current situation of management in the commercial banks, tried to search for suitable theories and methods from the aspect of management procedures. It would be useful to manage operational risk effectively and control financial risk in Chinese banks so as to achieve stable and efficient operation for the industry .The thesis has five sections. First of all, it introduced purpose of the paper and literature reviews; secondly, it analyzed connotation, characteristic of operational risk and the necessity of improvement on operational risk management. At the same time it made comparison among the operational risk, credit risk and market risk. Thirdly, it analyzed supervision of operational risk at home and abroad, supervision demand of commercial bank from Chinese banking supervision committee, the ten principles of operational risk management from The Basel committee, the relation between operational risk and the three pillars in New Basel Capital Accord and what it threw light on Chinese commercial banks. Fourthly, it analyzed characteristics of operational risk in Chinese commercial bank and found out the major problems. Finally, it discussed management process of operational risk, design of tools and tried to find out what management process and tools are suitable for Chinese commercial banks. These would keep the commercial banks sensitive to operational risk and offer relevant information to decision maker. Meanwhile, they offered cost control system to evaluate risks and create condition for calculating operational risk capital.In conclusion, the thesis is a basic research on operational risk in Chinese commercial banks. The writer, making full use of theories studied during his post-graduation period, focused on operational risk management process and method. Due to his limited knowledge, there might be some mistakes in the thesis. Any criticism from experts is welcomed.