A Study On Operational Risk Of Banks And Its Risk Mitigation Using Simple Insurance Measures

Starting in the 1990's,scholars have realized the existence of the risk operation,the operating risk recognition and measurement of the research has made some achievements.However,for operational risk insurance mitigation theory research and empirical measurement,how to apply in practice,as well as the operation risk related regulations aspects such as the depth and breadth of research is far from enough.Operational risk and mitigation is the subject of research,this paper will choose insurance mitigation method and the optimal contract elements as the research target,in order to provide some ideas about operational risk insurance mitigation methods for financial institutions and regulators.This article focuses on two problems.First,analysis the insurable property of operational risk insurance and cost and benefit analysis of commercial banks;Second,this paper established a simple insurance model which brings us enlightenment.Based on the analysis of operational risk insurance of insurable property,from the perspective of risk type analysis of the necessity of operational risk management.Secondly,the paper concludes simple insurance mitigation models for optimal insurance method,the purpose is to draw some regularity and relative conclusions.In this article,we will measure operational risk loss of internal fraud,choose data in nearly 7 years of the five major state-owned banks and five large joint-stock commercial banks,a total of 177 internal fraud loss data,using the operating risk measurement under the advanced measurement of loss distribution method of empirical analysis,using Monte Carlo simulation to expand the amount of data and operation risk total loss probability by history data,and finally get a complete factors of insurance contract,then design of several representative model and comparability of the insurance contract.According to the standard of optimal simple insurance mitigation scheme,individual insurance model should have maximum value and maximum points,the actual operation risk mitigation effect is the biggest and the same,there is no regulatory arbitrage and has no difference between simple insurance contract with real insurance mitigation effect.This paper got the following conclusion:commercial banks can buy insurance contract,in order to mitigate the damages resulting from the operation risk.Operational risk in the low frequency high loss event is the main insurance types we study operational risk insurance,its characteristics meet the requirements of the insurance characterized by pure loss and insurable.After the introduction of insurance,a simple bilateral contracts into a mixture of three-way relationship.Whether or not to use operational risk insurance need to measure the costs and benefits of insurance.Normally,benefits is greater than the costs,banks are motivated to buy insurance.We need to choose single optimal contract which consistents with actual risk mitigation among several simple insurance methods.The other simple insurance mitigation methods are overvalued or undervalued,which can not accurately reflect the real mitigation,so there are regulatory arbitrage.