A Study On The Operational Risks In Chinese Commercial Banks Based On The Loss Distribution Theory

Operational risk is born with the appearance of commercial bank as well as the oldest risk of commercial banks. With the development of the financial, operational risk hadn’t receive much attention like market risk and credit market, the loss it brings is so litter that it can be overlooked. But from 80 s of 20 th century, the foreign financial institution continuous occurrence of huge losses and the reasons of operational risk are various. So, it is an essential premise for commercial banks to maintain steady operation by improving risk measurement methods and strengthening risk supervision. In domestic banking, the understanding of operational risk is still plain, the measurement and supervise of operational lacks essential regulations and laws. In addition, the database based on it has not established. What is more, it lacks complete and reasonable response mechanism in terms of the operational risk loss affairs. All these bring huge difficulties to the acute calculation of the operational risk in domestic commercial banks. Therefore, this paper on the measurement of operational risk of Chinese commercial bank is of great significance.This article introduces the background, researching meaning and the current situation of operational risks at home and abroad as well as some basic and related theories in the research. Then, it introduces the definition, classification and features of operational risks. The article also introduces the daily used methods of measuring operational risks and analyzes the pros and cons of various methods, and finds the loss distribution approach which has improved is the best choice for measuring the capital of operational risk of China’s commercial banks. In response, this article lays down research object based on the public distribution of the loss date on commercial bank from 1994 to 2014. It uses loss distribution approach to measure the operational of domestic bank. Based on Monte Carlo simulation to measure the economic capital of operational risks, we should make use of the actual loss data to fit out the optimal loss frequency and loss intensity distribution at first. In addition, uses the advanced risk management software named crystal ball to carry on Monte Carlo simulation to fit the total loss distribution functions and calculate the value at risk, also known as risk capital required configuration. Finally, we can through logarithmic treatment of the loss intensity to fit the corresponding distribution. Then, we can calculate the improved risk capital. The outcome shows that the risk capital which should be obtained is 130.0037 billion which is smaller than before.All in all, based on the conclusion above, we can put forward suggestions to commercial bank from the promotion of loss distribution approach and give several recommendations to prevent operational risk on management which can in turn help commercial bank by improve the awareness of the prevent operational risk and reduce the loss from operational risk.