On The Improvement Of The Internal Control Mechanism Of Commercial Banks In China

Internal control of the commercial bank is a sort of dynamic process and mechanism designed to avoiding, controlling and post-evaluating risk by establishing and implementing a series of rules, procedures and methods, in order to achieve the commercial bank's operational objectives. Whether the internal control is perfect not only concerns the steady operation and sustainable development of a commercial bank, but also has significant meaning for a country's financial market, even for the international financial market. Especially in the current situation that the integration and liberalization of global economy is soaring, financial risks are escalating, guarding against and dissolving financial risks, and perfecting the internal control mechanisms of commercial banks have become a consensus between domestic and international financial community.On the basis of introducing the meaning and theory development of commercial bank's internal control, this paper summarizes the advanced practical experiences on commercial bank's internal control in developed countries. Then, combined with the current situation of the commercial banks'internal control in our country, this paper analyses the gaps and defects on the internal control mechanism of commercial banks. On this basis, this paper puts forward suggestions on how to perfect the internal control mechanism of commercial banks in China.The whole paper divides to five parts:The first part briefly introduces the concept, objectives, category, targets, contents and principles of commercial bank's internal controls, and then the paper analyses the significances of perfecting the internal control mechanism of commercial banks.The second part introduces the theory development of internal controls both in our country and in foreign countries. First, the paper reviews the development processes of the internal control theory and the theory achievements at each stage; secondly, the paper introduces the international research achievements of the theory on commercial bank's internal control; thirdly, the paper summarizes the research processes and achievements of commercial bank's internal control theory in our country.The third part summarizes the practical experiences on internal control of commercial banks in developed countries. The research on commercial bank's internal control is relatively early abroad, especially in western developed countries. In the long-term management of commercial banks, western developed countries have accumulated rich experiences on the management of internal control, which is undoubtedly of great reference significance for China's commercial banks to establish and perfect the internal control mechanism. This part sums up these practical experiences mainly from eight aspects: internal control culture, corporate governance, design of organizational structure, identification and assessment of risks, authorizing and credit assigning, internal audit and inspection, information system and staff management.The fourth part analyses the present situation and existing problems of the commercial bank's internal control in our country in detail, which is one of the important parts in the paper. Many commercial banks in our country have initially set up an internal control system which is much more scientific and stricter, forming a restricted and supervised internal control mechanism, but in general terms, the commercial bank's internal control system of our country is not perfect, there are still many problems and defects in it, and compared with international counterparts, the internal control level is much lower, and the internal control effect is not very good. This part analyses the existing problems of the commercial bank's internal control mechanism in our country mainly from five respects. First, internal control environment respect: lack of well-understanding of the commercial bank's internal control, having not formed a good internal control culture; corporate governance and internal organizational structure is still irrational. Second, internal control system respect: although every commercial bank has established a set of internal control system closely related to its business development which has played a significant role in setting up an effective internal control mechanism and in the stable operation of the bank, there still are many serious deficiencies and defects in it, that is: the internal control system is not complete, lack of foresight, not systemic, not operable, and not mandatory. Third, the risk management respects: in recent years, commercial banks in China have carried on much exploration on risk assessment, and have made some achievements, such as the "three investigations" system of credit and the five grades classification system on loan risk. However, the risk identification and assessment capability is much weaker compared with foreign modern commercial banks, which is mainly manifested on that the awareness of risk assessment is poor, the risk assessment is not comprehensive and the techniques and methods of risk assessment are old. Fourth, internal audit respect: many commercial banks have set up their own internal audit departments, but the departments are lack of independence and authoritativeness, and the internal audit is not very effective. Finally, the information system respect: A good information system can help improve the efficiency and effectiveness of commercial bank's internal control, but for various reasons, commercial banks of our country lag far behind the commercial banks of western countries in the construction of the information system. The information communication is not fluent between every department, the information feedback mechanism is not complete yet, which have seriously weakened the efficiency and effectiveness of commercial bank's internal control.The fifth part presents some proposals to improve the internal control mechanism of commercial banks in China, which is one of the important parts in this paper. On the basis of analyzing the present situation and existing problems of the commercial banks'internal control in China, learning from the advanced experiences of developed countries, the paper puts forward suggestions on how to perfect the internal control mechanism of commercial banks in China from seven respects: accelerating the construction of staff conception and company culture, correcting the deviation of the understanding on internal control, and fostering internal control culture; continuing to advance and deepen the reform of commercial banks in china, to establish an effective corporate governance mechanism and a rational internal organization framework; further completing the internal control system; completing the risk assessment system of commercial banks to improve the capability of risk identification and assessment; setting up the authoritativeness of the internal audit department, strengthening the effectiveness of internal audit; establishing and completing the information system, to meet the information needs in internal control; establishing a checking and incentive mechanism that is rational and high efficient, taking strict examination and making clear rules for reward and punishment.