Research On Operational Risk Management For Chinese Commercial Banks

Risk management lies at the heart of the financial service industry. Since late 90s, operational risk has become the hot topic for foreign banks and financial supervisors. The Basel II Capital Accord of 2004 set guidelines on capital requirements for operational risk, which promoted the development of operational risk management.In China, most Chinese commercial banks didn't pay much attention to operational risk management until the early of 2005 when many large financial scandals were reported. Their focus on credit risk management and lack of scientific operational risk management are the main reasons for those cases. In order to reduce such cases and improve the competitiveness of Chinese commercial banks, they should take operational risk as an important risk type. They have to make great efforts to find the most suitable method to manage operational risk.This paper is aimed to provide a systematic operational risk management framework to Chinese commercial banks. On the basis of 259 operational risk cases from Chinese commercial banks, this paper first analyzes the conditions of operational risk management in China, and then it discusses how to improve the management level in light of the approaches in Basel II, the current overseas experiences and Chinese conditions. As a whole, Chinese commercial banks should improve their operational risk culture, internal control, operational risk management structure and methods, and technique so as to build a sound operational risk management system.