China's Commercial Banks Operational Risk Management Study

This paper focuses on the management of operational risk of commercial banks in China. Currently, risks in banking institute can be generalized as market risk, credit risk and operational risk. With the opening and globalization of banking, complex in bank business and application of information technology (IT), operational risk has gradually become an important theme in recent years. The New Basel Capital Accord, issued by Basel Committee on Banking Supervision on June 26th, 2004, brings operational risk into line with a managerial framework.At first, according to the New Basel Capital Accord, the definition of operation risk is the risk of loss resulting from inadequate or failed internal processes, people and systems or external events. According to the cause of formation, operational risk can be divided to seven kinds. And, operational risk can also be classified as eight kinds in the light of business lines and loss events. Based on the practices of banking businesses, we analysis the general factors which cause the operational risk. They are financial corruption, moral hazard, management and employees'profession knowledge and technology level.After giving primary division of operational risk, we adopt a quantitative method that is from simple to difficult to measure operational risk. The measurement of operational risk can make use of three approaches: Basic Indicator Approach, Standardized Approach and Advanced Measurement Approach. And, besides quantitative methods above, there are also some qualitative methods to access operational risk.Then, we introduce the framework of operational risk management composed of ten principals given by Basel Committee on Banking...