China's Commercial Banks Based On The Internal Measurement Method Of Operational Risk Measurement And Management

In recent years, the occurrence of financial affairs in Chinese commercial banks is frequent. Tracing its cause, operational risk should take great responsibilities. So, New Basel Accord brought operational risk into the framework of capital adequacy ratio, and required financial institutions to operate the corresponding capital for operational risk. China Banking Regulatory Commission issued The Guidelines on the Implementation of the New Basel and Guidelines on Operational Risk Management of Commercial Banks on February 28 and May 14, 2007 respectively, which required commercial banks to make capital provisions for operational risk and improve the operational risk management.We should see clearly that the operational risk circumstance in our commercial banks is not good. Facing the truth of relatively poor knowledge and low standard about operational risk in our commercial banks, how to solve the problems on operational risk measurement and management is becoming important and urgent. So, the research on operational risk measurement and management has significant theoretic and realistic meanings, not only for running in commercial banks themselves, but also for meeting the demands of China Banking Regulatory Commission.This paper analyses the question from the angle of commercial banks. Our conclusion is the internal measurement approach is most suitable for our commercial banks by comparing with other operational risk measurement methods. And we improve the IMA and give the implementation methods.This paper consists of six chapters. Chapter one introduces background of choosing this title, and structure of this paper. Chapter two gives the outline of operational risk. Chapter three presents methods of operational risk management. These methods include basic indicator approach, standardized approach and advanced measurement approach. And advanced measurement approach consists of internal measurement approach, loss distribution approach and scorecard approach, etc. We expound the internal measurement approach, illustrating this method is most suitable for our commercial banks through comparing with other methods. Chapter four introduces implementation conditions of IMA and obstacles to apply it. Chapter five puts forward the solutions on applying IMA. Chapter six is conclusion of this paper.