Commercial Banks Operation Risk Status And Countermeasures In China

With the development of financial innovation, more and more operational risk events occurred in recentyears. Huge losses or even bankruptcy was brought to banks all over the world. In order to adapt to the newsituation of risk, Basel Committee has pronounced the new Basel Capital Accord. Operational risk, creditrisk and market risk are officially identified as three major risks of bank in this new Basel Capital Accord.The measure of including operating risk into the calculation of risk-weighted capital from The BaselCommittee’s initiatives successfully promote the prevention of global banking concern about operationalrisk management process. Compared with advanced international banks, Chinese commercial banks did notdevote enough attention on the operational risk until recent years, and the risk management system is stillfar from adequate. Operational risk events continue to emerge, which caused huge losses to Chinesecommercial banks. So under the guidance of the Basel Capital Accord, Chinese commercial banks mustcombine with the specific features of banking sector to formulate reasonable and effective measures toprevent the emergence of operational risk.Firstly, this paper analyzes the background and the consequences of the banks’ operating risks throughrelated cases. The paper reviews the research frontier situation of operational risk evaluation at home andabroad. Then the paper describes the basic definition of bank operational risk, classification and the threemetrics. The three metrics include The Basic Indicator Approach, The Standardized Approach andAdvanced Measurement Approach. Readers can have a full understanding about the generality of theoperational risk. Innovation of this paper is using the combination of qualitative and quantitative methodsto study the current status of Chinese commercial banks’ operational risk. Firstly, from the point ofqualitative, the mainly occurrence context of operational risk will be discussed. Through the analysis, the main types of risks will be summarized as internal fraud and external fraud. After that, data of Industrialand Commercial Bank of China, China Construction Bank and China Merchants Bank as known asjoint-stock banks will be selected to analyze. The risk capital of these three banks will be analyzed by theBasic Indicator Approach and Revenue Model in both the absolute value and the relative value. Then theconclusion will be founded that a reasonable organizational structure and the establishment of risk databaseare essential for Commercial banks. In the summary, the main reason of operational risk in Chinesecommercial banks will be presented. It includes unsound organizational structure, incomplete risk database,and lack of professional ability and professionalism of bank staff. In the end, the preventive management ofoperational risk will be advanced combining with the main reason of operational risk in Chinesecommercial bank. The importance of the establishment of Operational Risk Management Committee andthe construction of risk management process will also be strongly emphasized. Therefore the establishmentof a complete operational risk database can provide the bank a comprehensive understanding of operationalrisk, and also help the bank to take the Advanced Measurement Approach. In addition, the important role ofthe soft environment improvement also will be pointed out.The paper primarily uses the combined method of quantitative analysis of financial theory andeconometrics to investigate the status of China’s commercial banks and make prevention advice.Thisprovides some theoretical support for the establishment of China’s commercial banks to control operationalrisk.China’s commercial banks risk database is not complete, and operational risk-related data is notpublicly announced, so that the representativeness of the data we have collected so has some limitations.These will be further improved.