Study Of Operational Risk Control And Management Of State-owned Commercial Banks In China

Operational risk is one of the oldest risks with the birth of the banking business, which is not new but emerges continuously and grows in the context of economic globalization, information revolution and banking business complication. Big loss and bankruptcy appears frequently because of misopreration and ineffective internal control.Theoretically, the risks commercial banks facing can be classified into market risk, credit risk and operational risk. The commercial banks have paid attention to market risk and credit risk long before because the two types of risk is closely related to credit assets and is easy to be measurable and good risk management technology and effective management system have been established in all commercial banks. The concept of operational risk has been introduced once upon a time; however, it is after the issue of Basel New Capital Protocol in June 2004 that operational risks have been managed as one of the main risks together with market and credit ones the commercial banks have to confront. Recently, operational risk has become one of risks being focused on prevention and control in commercial banking business.China have opened the financing business to outside world totally by the end of Dec 11th 2006 which means foreign financing institutions will compete with our local ones in the fields of territories, customer scopes, business ranges, risk preventions and controls. Operational risk management of stated-owned commercial banks still falls behind that of foreign banks. Stated-owned commercial bank need to research and establish effective operational risk management model theoretically and practically combining our own national conditions with international conventions, which is the research purpose of this paper.The first part of this paper introduces the status quo of operational risk management home and abroad and especially the serious cases resulting from the shortcoming of operational risk management in Chinese finance industry and then explains the background and significance of this topic. The second part introduces the definition, classification and principles of operational risk in Basel New Capital Protocol and the foreign and domestic research state as well. The third part analyzes the operational risk cases recently in China and summarizes the characteristics and trends of operational risks, then makes case study on operational risk in one of the state-owned commercial banks in order to demonstrate the specific situation of operational risk in China. The forth part analyses the reasons of the operational risk of state-owned commercial banks from the angle of institutions, technology and environments. The fifth part makes suggestions on strengthening and improving the operational risk management in Chinese commercial banks. The sixth part is the conclusion.Banking is a high risk industry and the risk exists in the whole business process; whether the risk is controlled and managed efficiently or not concerns directly the financial enterprises, financial system and social stability. The operational risk is a new subject which the financial practitioners will face forever with the fast-changing development of financial industry. Chinese commercial banks should strengthen operational risk management not only from the angle of operational risk management technology but also from the angle of corporate governance in order to solving the problem resulting from institutional factors; and should establish perfect operational risk management system and improve the level of operational risk control and management gradually.