Operational Risk Management Of Commercial Banks

Since the 80’s of 20 centuries, a series of financial cases caused by operational risk shocked the international banking. So more and more banks began to set up a lot of policies and procedures of operational risk management, to deal with the complexity of the operational risk events, reduce the economic losses on operational risk events. And they used a lot of very strict standards to make the policies and procedures of operational risk management.The bank’s risk management capability determines the competitiveness of the bank. There are three major risks in business of commercial banks, which are market risk, credit risk and operational risk. The international banking industry attaches great importance to credit risk and market risk, so credit risk and market risk have been written into "The Basel Capital Accord". In fact, operational risk is one of the most important risks that can not be ignored. Operational risk was talked about by some banks and defined indirectly as "the risk that can not be put into market risk or credit risk".In 2004 June, the Basel Committee on Banking Supervision (the Committee) was released the overview paper as an accompaniment to its third consultative paper (CP3) on the New Basel Capital Accord (also known as Basel II). The issuance of CP3 represents an important step in putting the new capital adequacy framework in place. The Committee believes that operational risk is an important risk facing banks and that banks need to hold capital to protect against losses from it. Within the Basel II framework, operational risk is defined as the risk of losses resulting from inadequate or failed for internal processes, people and systems, or external events. The New Basel Capital Accord consists of three pillars:minimum capital requirements, supervisory review of capital adequacy, and public disclosure. One of the most important characteristics of the New Basel Capital Accord is it puts forward the concept of operational risk. And put it together with the credit risk, market risk, constitute the bank risk capital measurement and supervision framework. The Basel Committee on Banking Supervision has written operational risk into "the New Basel Capital Accord", which means that operational risk is more important in commercial banks. The New Basel Capital Accord attaches great importance to operational risk. Moreover operational risk was classified according to cause in the New Basel Capital Accord. The Committee defined and classified operational risk and set different type of that through loss reason.The operational risk, equivalent to credit risk and market risk, has become one of the three risks of banking and how to carry out the bank operational risk management is one of the hot issues discussed in the academic and industrial circles. Operational risk management is a core part of modern commercial bank risk management. Under the background of world finance -- economy integration, banking international competitiveness, risk management is increasingly becoming a forefront and a hot issue in the field of bank risk management in recent years. So the international banking industry has promoted deep research on the theory and practice of operational risk management. However, to the national commercial banks in the transformation, operational risk management in domestic banks is in the early stage. The theoretical research, practical applications and regulation standardization in operational risk management lag far behind the credit risk management and market risk management. And compared with market risk and credit risk, operational risk has a problem that can hardly be structured. But with the development of Chinese banking industry, strengthening the operational risk management research, improving risk management completely is becoming a key issues for domestic commercial banks.Most of current academic research on operational risk has lasted the ideas and methods of credit risk and market risk, more emphasis on operational risk measurement model and construction management framework, less involve the internal control management. And the Committee supplied operational risk supervision with measures of that, which is important for doing with sudden loss from operational risk. However, because of system missing or ineffective internal controls, internal and external fraud or other reasons, operational risks continue to rise, reminding people reconsider the correlation between internal control and operational risk management, weeding out operational risk at root by using internal control. Only rational and perfect policies and procedures in internal control could guard and supervise operational risk. The operational risk management is a kind of important risk for commercial banking, and the inner control in the information technique environment is one of the important methods. This thesis starts the research of operational risk management from the perspective of internal control. This paper is more useful to enrich and add commercial banks operational risk management theory and methods, reduce the commercial bank operating costs of operational risk, improve the efficiency of decision-making, it has very important theoretical and practical significance.