A Study On Commercial Banks’ Operational Risk Measurement Based On The Basel Capital Accord

With the expansion of our country’s banking industry and the diversification ofbusiness, it has increasing competition among the banks. However, due to the imperfectsystem and the non-standard personnel management, China has caused a huge ofoperational risk events which brought tremendous impact to the banking industry evento the whole financial system. Apparently, operational risk has become an important partof risk system in banks. Because the scholars started late and the research was relativelylagging, it didn’t form a systemic theoretical framework for operational risk. On thechoice of measurement method, the lack of effective historical data makes a significantlimitation. In this context, it has an important theory value and practical significance onoperational risk especially about the effective measurement model building.This paper is based on the Basel Capital Accord, aiming to study on commercialbanks in China through theoretical analysis and the empirical model. Combined with thepanel data and time series data, it is possible for our country to measure the operationalrisk in present stage which has short time to market and lacks of effective historical data.The main innovation lies in the empirical part. Given the banks of short time to market,we use panel data to select explanatory variable in order to enhance the effectiveness ofthe model. On the choice of data selection, we use quarterly data to assess the loss ofdifferent banking model by comparison with state-owned banks and the joint-stockcommercial banks.The logical order of this paper consists of four parts as follows:The first part is the introduction. It mainly includes about the research backgroundand its significance. From two aspects of operational risk management andmeasurement study, this part reviews the research achievements obtained so far andsummarizes the research methods and innovation points.The second part is based on the Basel Capital Accord, which goes into the theoryof operational risk in detail, especially for the definition, classification and its’characteristic. Besides, the qualitative and quantitative requirement during the evolutionof The Basel Capital Accord is presented in chronological order deeply. This part alsofocuses on the method selection. Specifically, through comparing the applied conditions and the advantages and disadvantages of all kind of operational risk measurementmethod, it concludes that Income Model is the best choice at present.The third part tests four commercial banks in China empirically. Combined withpanel model and time series model, we calculate the four commercial banks under99.9%confidence level of provision for capital operation risk. For convenience ofcomparing the different situation among the banks, we introduce the concept of relativeoperational risk and calculate the relative operational risk value of these banks. Theresults show that the value of relative operational risk was from larger than large isShanghai Pudong Development Bank, Bank of China，Industrial and Commercial Bankof China and China Minsheng Bank.The last part provides the reference for the transverse comparison between thestate-owned banks and the joint-stock commercial banks. Based on financial statementdata and the reality, the biggest reason for the difference of operational risk lies oncapital adequacy ratio and non-performing loan ratio for joint-stock commercial banks.As to stated-owned banks, represented by Industrial and Commercial Bank of China,perhaps the large scale and concentrated branches and staff are the most importantfactor for a relatively high proportion of operational risk. Moreover, this part summariesthe main contribution and the development direction of this field in the future.