Endogenous Operational Risk And Management System Building

Operational risk (OpR) is as old a thing as bank. However, people begin to pay attention to it and do more and more studies on it until recent years. On June 2004, Basel Committee on Banking Supervision (BCBS) formally included OpR into its revised supervisory document-"the New Basel Capital Accord". From then on, the attention on OpR spread far away over the whole world via BCBS's powerful influence. Certainly, it is a milestone to the bank industry. But we still feel apprehensive because of the underlying OpR threaten. We are compelled to find solutions to it.Unfortunately, we misunderstood something at the very beginning. Many banks, especially the banks in China, lacked experience in risk management. They hurried to know about OpR when capital was required on it by "the New Basel Capital Accord". Under capital requirement pressure and for lacking of OpR management experience, they became too sensitive to the OpR measurement. However, they were not sure about what to do to mitigate OpR. The situation is very urgent.Among OpR's characteristics, endogeneity is crucial. This tells us that capital allocation shouldn't dominate the OpR management process. So that, research on measurement methods shouldn't be the primary task in this period, either. Considering OpR is endogenous, we should focus on the construction of OpR management system. Just that, the basis of OpR could be weakened.In detail, the construction relates to three aspects: OpR management environment, organization framework and operational process. We can learn from excellent banks, but our history and custom should also be embodied. As OpR, OpR management system is endogenous, too. Only the system incorporated into individual bank's facts would works effectively.