China's Commercial Banks Operational Risk Measurement Research

In recent years, operational risk incident of commercial banks break out heavily. It has caused huge losses. As we all kown. whether commercial banks are able to manage and prevent operational risks effectively is directly related to the development of banking industry. which is of great importance to the stability of financial system. Of course. it is a basic and necessary guarantee to our society and economic prosperity. Measureing precisely is the key to effective management of operational risks. Financial and regulatory authorities are paying more and more attention to operational risks. Firstly, Basel committee is constantly complishing the job of updating operational risk content. Secondly. the methods measuring operational risk are marching towards a high level and improving constantly. However. the time operational risk capital is included in the scope of regulation is just nine years. When compared with credit risk or market risk which are relatively mature, it is still in its infancy. The definition, measuring standard and manageing system have much controversy. Now, we have no available controlling technology and manageing system. Corresponding to the domestic, the emphasis that financing industry put on operational risk, as well as the applied research on operational risk measuring techniques and methods, is far less than foreign peers.This paper not only discusses the current understanding of the definition of operational risks at home and abroad, but also analies the application of the measuring model with its advantages and disadvantages. Afterwards it has explored a method which is suitable for China’s commercial banks. It has take Merchants Bank for example by using14years of annual time series data from1999to2012, later giving a total empirical analysis. Based on the fomer empirical analysis, it has also maked a prediction of amount of operational risk losse, which is quite in line with the current situation of the bank. All this job could cetify that the revenue model is applicabe for measuring operational risk of China’s commercial banks. In addition, it has chosen one classical operational risk case to analy. Finally, it proposes the questions faced by practical measuring of operational risk and puts forward suggestions for improvements.