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A Comparative Research On Operational Risk Measurement Methods Of Commercial Banks In China

Posted on:2013-09-23Degree:MasterType:Thesis
Country:ChinaCandidate:Y F WangFull Text:PDF
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Operational risk is one of the main risks that commercial banks are faced with, it is being paid close attention to by the risk managers all over the world since Barings Bank and Daiwa Bank bankrupted as a result of heavy losing from operational risk events in the1990s. So, the research of operational risk is more and more progressed either in China or in the international level, and a lot of achievements about operational risk management and quantification have been made. In resent years, the Chinese government adopts tight money policy to restrain the increasing inflation, which makes the commercial banks unfold competition of absorbing savings for chasing high interest margin of the unbalanced capital market. Meanwhile all the nationalized commercial banks expand their scales continuously, and regional commercial banks also rise up luxuriantly, their income increase substantially too. However, there are a lot of problems hiding behind the boom:banks pay too much attention to their business development but less vigilance to the operational risk following behind. As operational risk events exposed by TV news, internet etc. turn up by not lower but higher frequency, it is obviously that the operational risk management level of domestic commercial banks does not keep pace with their speed of business developing. If this situation does not change, there may be great crisis in banking industry soon. For this reason, this paper chooses a subject of domestic commercial banks’ operational risk management and quantification method.Firstly, the operational risk of commercial bank is introduced, in this part, the writer overviews operational risk’s conception, causes, features and necessity of management etc. separately, then summarizes the urgency problems in Chinese commercial bank operational risk management. Secondly, the writer discusses different kinds of operational risk management model at present. In this part, several levels of operational risk quantification methods are compared and analysed such as:BIA, SA, AMA etc. By discussing these methods’ features and conditions, their applicability for domestic commercial banks are concluded. Thirdly, the current situation of operational risk at home and abroad is summarized by using operational risk events data. Then the writer concludes the special circumstances faced by Chinese commercial banks. This conclusion can offer the basis for choosing appropriate method of operational risk management. In the last part of this paper, an Income Model is lead in. The theory of operational risk quantification by the Income Model is introduced at frist, and then the writer uses8years’seasonal data of China Merchants Bank and macroscopic economy to make an empirical analysis for measuring the ratio of operational risk and capital on risk. In the process of empirical analysis, the writer chooses CMBC as demonstration object, using Eviews6.0to process and screen variables. After screening many series variables, growth rate of GDP and ratio of bad loan are chosen as explanatory variables, which reflect the market risk and credit risk. The net profit of CMBC is the dependent variable. In this paper, the net profit of commercial bank is presumed to obey normal distribution. In the Income Model, the variance of net profit is the sum of two kinds of variance:the variance of explanatory variables which reflect market risk and credit risk; the variance caused by operational risk factor. Because the coefficient of determination (R2) reflects the rate of frist kind of variance, the variance of model can be calculated as σmodel2=R2×σall2, then the variance of operational risk factor is σoperation2=(1-R2)×σall2. By using variance and R2of the Income Model, capital of operational risk then can be calculated:by looking up the chart of normal distribution, the quantile fractile of normal distribution at99%confidence level can be get(2.33). So the lost caused by operational risk is σoperation times2.33. In the next part, the writer summarizes the results of the two parts of empirical analysis, and points out the defect of Income Model. At last the paper provides the way to improve Income Model and shows the target of Chinese commercial banks’management of operational risk.There are several innovation in this paper:Frist, it gives a multianalysis of some popular kinds of operational risk quantification method and makes an applicability research combined with specific circumstance in China. Second, it tests the variables of Income Model used by predecessors and selects new appropriate variables. Third, it uses more sufficient seasonal data in the regression analysis, and tests the Spurious Regression problem that ignored by predecessors in regression.
Keywords/Search Tags:Operational risk, Quantification method, Income Model
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