Operation Risk Management Of China's State-owned Commercial Banks

For a long time, commercial banks pay attention to the credit risk and market risk both at home and abroad. The management of the operational risk has not been drawn special concern by people. In February 1995 the bankruptcy of Bahrain Bank explained that operational risk has been more important in risk management of world banking system. And it has been a trend to take credit risk, market risk and operational risk into consideration as a whole. Reasons that Bahrain Bank went bankrupt in Singapore Bahrain futures derivatives are that staff transaction goes beyond his duty, without regard to the Company's benefit, and the supervision authorities have not perceived this at all. Bahrain Bank failed to carry on independent supervision to the business of the dealmaker. It is the operational risk that has caused enormous losses and destroyed Bahrain Bank finally. Japanese Daiwa Bank Ltd. suffered similar losses from bond market. Operational risk has been already regarded the same as market risk and credit risk in commercial banks.Nowadays, most state-owned commercial banks in our country are experiencing the transitional period to the real commercial banks, with imperfection of internally control mechanism. Operational risk is one of the main risk resources, and the proportion to the risk of commercial banks is far larger than that of developed countries. It made the research of measurement and management of operational risk in China very important and urgent.Operational risk has covered extensively in every aspect of management and administration in state-owned commercial banks. Once a certain link in management and administration goes wrong, it will bring enormous losses to banks. Jack L King, operational risk forum and British Banker's Association provide the definition of operational risk. The committee of Basel has also defined operational risk:"operational risks are risks of loss resulting from inadequate or failed internal processes, people, and systems or from external events."This definition points out...