The Operational Risk Of Commercial Banks In China

In recent years, some big loss events forced the banking supervision authorizations to be aware that some risks other than market and credit risk can be substantial. Operational risk, which has been defined as'the risk of loss resulting from inadequate or failed internal processes, people and system or from external events'by Basel Committee, was introduced to the risk management realm as a new risk catalogue in this situation. The New Basel Capital Accord even requires banks taking operational risk into account when calculating the economic capital. However, the banks in China don't have a lot of knowledge about operational risk whereas the loss from operational risk is huge in these banks. As a result, the research on measuring and managing operational risk has its special importance in China.Based on the fact that it's very difficult to collect internal loss data from China's banks, we try to collect loss data from public media. Then we use some scene analyze to describe the operational risk of China's banks. With the investigation of China's banks risk management circumstance and the advice from foreign financial institutions, we try to provide China's banks some sound advice concerning operational risk measurement. Firstly, we introduce the definition of the operational risk, and the general frame of operational risk management.Secondly, we systematically introduced quantitative and qualitative models in operational risk measurement. These models could be divided into two categories, one is the bottom-up approach, and the other is the top-down approach. In both approaches there are many models we could choose. Top-down approaches take aggregate targets, such as net income or net asset value, to analyze the operational risk factors and loss events that cause fluctuations in the target. Bottom-up approaches disaggregate the targets into many sub targets and evaluate the impact that factors and events have on these sub targets. The results are then integrated to produce aggregate effects. Then we introduced the three approaches proposed in the New Basel Capital Accord. They are Basic Indicator Approach, Standardized Approach and Advanced Measurement Approach. Banks could choose models according to their risk management environments and loss data collection. Also we introduced the qualifying standards of these three approaches. Inthe last part of this section, we introduced two advanced models. They are practical implementations of AMA.Thirdly, we use model to analyze the operational risk of the main commercial bank of our country, so as to describe the operational risk of China's financial bank system.Fourthly, we introduce the advance experience on operational risk control of America,England,German and Japan, and concretely, we introduce the advance experience on operational risk control of JP Morgan Chase, and try to provide China's banks some sound advice concerning operational risk management..