Research On The Operational Risks In Chinese Commercial Banks Based On Income Model

A commercial bank is a type of special financial institution which engages in the currencytransactions. It is extremely important for a commercial bank to strengthen the risk management.credit risk will be firstly aware among the risks of commercial banks, with the developing of thebank investment activities, investment gains or losses directly affect the bank survival, the bank’smarket risk caused the vigilance of the Bank. Operational risk is one of the oldest risks, which isalong with the birth of the banking business. However it had not arouse the bank managers’attention in a long time. Until to the late20th century, operational risk caused a large number ofbanks losses frequently, causing serious economic losses to many financial institutions worldwide,financial institutions and scholars to shift attention to the operational risks. In June2004, the BaselCommittee on Banking Supervision issued a "New Basel Capital Accord", the operational risk isincluded in the provision of venture capital calculation and regulatory framework, which alsomarked the financial sector into a comprehensive new risk management times.In China, the study of operational risk is later, during the practice of China’s banking industry,operational risk awareness is obviously lagging behind the common risks such as credit risk,market risk and so on. China has lacked neither the systematic analysis of the operational risk for along time, nor the measure of operational risk measurement model. In this situation, the search foreffective operational risk measure, quantify and manage operational risk, reduce operational riskloss of commercial banks in China have important practical significance.This article summarized the characteristics of China’s commercial banks operational risk, andpointed out that the main problems. Then described the Standards Act and the AdvancedMeasurement Approach, compared a variety of measurement methods, and selected from the mostappropriate measure at this stage of China’s commercial banks to use the model-the Incomemodel. After analyzing the Income model, adjusted some defects, principles and assumptions ofthe Income model. In the empirical part, the use of adjusted Income model of the nine commercialbanks data were analyzed, drawn on the basis of empirical absolute gross operational risk forbanks. The variance is closely related to the absolute operational risk and total bank net profit, netprofit of different banks and bank net profit variance difference, if only the total value of theabsolute operational risk is to measure the risk of banking operations with a certain one-sidedness.This paper not only use the absolute gross value of operational risk, but also relative to grossoperational risk indicators-operational risk proportion (v) to measure the operational risk of thecommercial banks in China. Finally, based on empirical results, give some suggestions to China’scommercial banks on operational risk management and measurement.