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The Special Nature of Operational Risk in China Commercial Banks

Author: ZhangBin
Tutor: LiYanJun
School: Southwestern University of Finance and Economics
Course: Finance
Keywords: Commercial bank Basel II Operational risk Internal control system Management system
CLC: F832.2
Type: Master's thesis
Year: 2008
Downloads: 311
Quote: 1
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Abstract

In banking supervision, credit risk and market risk are long attracted the attention of financial institutions, and 70-80 years in the 19th century, has been the formation of a more sophisticated risk management techniques. Especially credit risk, from the first day of modern banking, bank by assuming the credit risk to profit. However, for operational risk, although the concept has a long history, but the operational risk as one of the three major risks of the bank's risk management recent years. Operational risk is the risk exists since the birth of the bank. It is widely present in all areas of bank management, is the basis of one of the risks faced by the Bank. However, its existence has not been caused by people importance attached to it. In recent years, due to international and domestic banking major cases occur more or less, and even can be said that most of the occurrence of operational risk related to commercial banks caused huge economic losses and serious damage to reputation. These attracted the attention of the industry and regulatory authorities. The new Basel Capital Accord was first introduced operational risk and credit risk, market risk mentioned in the same breath. Credit risk and market risk management, early proposed the allocation of capital requirements. Because they have long been the industry's attention, the research will be more. Both in theory, in practice have been successful. However, academia, industry operational risk has not given sufficient attention. Operational risk rather late, basically from 95. However, this does not mean that operational risk is not important. Operational risk is embedded in all aspects of banking, the various procedures involved in various business positions, and employees of the business lines. The course of the development of the foreign banking, commercial banks the problems brought about by the operational risk has long been not a new topic. Since the 1980s, the financial institutions due to operational risk has lost over $ 200 billion. In 2002, the Basel Committee held a global operational risk survey, the surveyed banks report a total of 47,269 from the amount of the loss of more than 10,000 euros operational risk events, with an average per bank operational risk events in 528 from 1. Which a few of the more well-known international major: 1995, the British Barings Bank trader Leeson to conceal the fact Nikkei transaction fails, resulting in a loss of 927 million pounds, and ultimately makes the collapse of century-old; 1995, Bank of Japan and Japan to conceal the fact that failure by the U.S. Treasury trading, resulting in a loss of about $ 1.1 billion more than; 2002, Ireland in 1997, the UK Simin Bank of Sri Lanka to conceal the fact of the swaption transaction fails, resulting in a loss of 77 million pounds; Alf West Branch, Union Bank of fraudulent transactions to conceal the fact that foreign exchange transactions, announced losses amounted to $ 750 million. For our part, the beginning of 2005, China's banking sector seems to look into the \First Bank of China Heilongjiang River Pine Street branch president at the beginning of alpine Juankuan 10 billion absconding cases; following February 22, Construction Bank, Jilin Branch 3.2 billion financial fraud surfaced; March 24, the CBRC also uncovers Baotou branch of the Agricultural Bank of major cases of illegal business, involving 115 million yuan; separated by only eight days, April 2 Bank of China Beijing Branch 640 million residential flats have Piandai major exposure. CCB listed sprint stage, took place in the former governor Zhang was a sudden \Li Yang, the Chinese Academy of Social Sciences, director of finance referred to as \In other words, the operational risks faced by China's banking sector is gradually emerging, and the severity of worrying. With the global financial globalization, financial innovation and the development of financial deepening, the continuous expansion of the size of the bank, the bank rapid amplification of the transaction amount, banks operating complexity increased sharply, making the bank's operational risk more and more attention. For our part, the commercial banks have gone through the course of 20 years of reform, is now in a substantive and critical stage. However, in the context of the times of financial globalization, the rapid development of derivative financial instruments, operational risk will be more complex and diverse. Therefore, how to deal with commercial banks operational risk in the current study has important strategic significance. Elaborated international the several typical definition of operational risk, to reveal operational risk sources and classification, given the characteristics of China's commercial banks operational risk and the combination of China's commercial banks operational risk events. The article focuses on the special status of the particularity of China's commercial banks operational risk, including operational risk, special causes, as well as special management necessity to learn from the International JP Morgan Chase Bank and China Construction Bank operational risk management experience to build our commercial banks operational risk management system is suggested. And through the analysis of a large number of cases the following conclusions: operational risk exists in customer withdrawals and payments each process, ie a process operating risk exists in the banking business; economic system and the banking system affects the operating system of commercial banks change is an important reason for China's long-term operational risk. This includes institutional reasons, the existence of systemic risk, the bank's internal control imperfect; important factor in the current high-tech crime is a commercial bank operating risks. Therefore, to improve China's commercial banks operational risk management system must proceed from commercial banks to strengthen the internal management and construction of commercial banks internal control system, strengthen personnel training, improve staff quality, and focus on technological innovation. Then of extending to the strengthening of external management, such as strengthening information disclosure system, strengthen the regulatory functions of the China Banking Regulatory Commission, improve operational risk laws and regulations. With regard to the measurement of operational risk, in this article is just for a brief introduction and description and not related to empirical research. The expected goal of this paper is to reach so that we have a comprehensive and clear understanding of the current status of operational risk, the presence of defects and the development of system-depth understanding of the meaning of the operational risk. In this paper, the main methods and distinct characteristics: empirical analysis and normative analysis combined. Empirical analysis of this paper, the problem of defining the definition of operational risk, operational risk sources, causes, and China's commercial banks operational risk management deficiencies; China should build what kind suitable for China's national conditions of operational risk management system and other normative analysis. Through a combination of both methods, the thesis more in-depth. Comparative analysis. In this paper, the gap between China and Western countries in the operational risk management, construction conforms to their national conditions and measurement model and operational risk management system. The combination of theory and practice. This article only describes the basic theory of foreign operational risk, these theories in turn applied to the banking industry practice, the formation of better ideas and practices in operational risk management practice. The combination of foreign and domestic. At present, foreign commercial banks in the operation and management than we mature a lot. However, due to the country's economic and financial environment is different, each bank also vary widely. Even mature foreign products and practices can not simply be transferred. Especially foreign commercial banks in the operational risk management is also a wide variety. Foreign advanced practice combined with the actual situation, which to improve and perfect in order to achieve good results. Case study and combined. To interpret them from a purely theoretical point of view, can only be less effective, with little success. Collected from the operation of the various types of practices at home and abroad a large number of living cases, reached through the analysis of these cases so that readers understand the purpose of the operational risk. The combination of data and charts. By statistics, processing and handling of some of the data, to produce some beautiful image of the chart but also enhances the article convincing. More theoretical innovation of this paper is that: the various definitions of operational risk given an adequate explanation, and many of the definition of operational risk to find out the definition in line with China's national conditions, domestic commercial banks during the operational risk management basis; cases and charts reveal defects of China's commercial banks operational risk management emphasized the special nature of the understanding of China's commercial banks operational risk management, causes; to build China's commercial banks operational risk management system provides a theoretical and draw on the experience. In particular the China Construction Bank on the operational risk management experience is worth and learn from other commercial banks. Operational risk management involves a wide range of areas, Given the time of the study, conditions, limitations of the research capacity, in this article, there are a lot of inadequacies: This in Operational Risk risk model, due to the lack of a rational understanding of the data and data collection, processing , processing difficulties, did not pass the econometric model empirical analysis; In this paper, a description of the operational risk characteristics, there is no in-depth analysis in addition to risks other than credit risk, market risk and operational risk difference; our operational risk measurement model research, lack of creativity, but the basic operational risk measurement model will be described; inadequacies of this article is that in many parts of the article is not in-depth.

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