What Are the Different Operational Risk Jobs?

Operational risk measurement refers to the quantification of operational risk in business. Operational risk measurement is part of operational risk management.

Operational risk measurement

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Operational risk measurement refers to the

The measurement of operational risk is the premise and basis of operational risk prevention and supervision, and an important basis for determining the level of capital adequacy. The current method of measuring operational risk is far less perfect than the method of measuring market risk and credit risk. According to the recommendations of the New Basel Accord, there are three main methods for measuring operational risk: basic index method, standard method and advanced measurement method. The advanced measurement method can be divided into internal measurement method, loss distribution method and scorecard method. Operational risk measurement method is one of the loss distribution methods. ^[1]

I. Basic Indicator Approach ^[2]

Case 1: Discussion on Operational Risk Measurement Management of Chinese Commercial Banks

The new Basel Capital Accord lists the banking industry as having three major risks: market risk, credit risk, and risk operation. At present, China's commercial banks have conducted more research on market risk and credit risk, and their management methods are relatively mature. The study of risk started late, and the degree of attention was slightly insufficient. In the management of operational risk, the measurement of operational risk is the key. Advanced operational risk measurement methods are helpful for the identification, evaluation, and control of operational risk, and the level of "mitigation, monitoring, and reporting is improved." Preliminary discussion.

I. Operational risk capital measurement method provided by the new Basel agreement

In the Basel New Capital Accord, the Commission identified three different methods for measuring operational risk from easy to difficult, and incorporated the capital requirements for operational risk into the calculation of bank capital adequacy ratios. According to the Basel New Capital Agreement, there are roughly three methods for measuring operational risk: Basic Indicator Approaches, Standardized Approach, and Advanced Measurement Approach (AMA).

1. Basic indicator method. Most of the banks using the basic index method are relatively small banks with relatively simple business scope. This method considers the bank as a whole to measure operational risk, and only analyzes the bank's overall operational risk level, not its composition. The new Basel agreement proposes to use the average gross income of the bank for the past three years as a standard and multiply it by 15% to determine the capital reserve required for operational risk. However, the problems with this method are: first, the lack of sensitivity in the measurement of operational risks; second, it is more difficult to directly compare the operational risks of banks with those of other banks and the entire banking industry; and third, there is no way to compare the operational risks of banks Accurately measure operational risk across business areas or product areas. This approach does not encourage banks to improve their operational risk management.

2. Standard method. Banks using the standard method are banks with limited data collection and analysis capabilities. This method divides financial institutions into different lines of business. For each line of business, the required capital is B times the exposure factor. Although this method is more detailed than the basic index method for measuring operational risk, it is only a simple extension of the basic index method and does not overcome the shortcomings of the basic index method.

3. Advanced measurement. Most of the banks using advanced measurement methods are large banks with very complex business portfolios. This method has to calculate the data collected internally for each type of business line and each type of loss, some of which can also be collected externally. This method mostly builds models and strives to estimate the probability distribution of operational risk over a certain period of time (usually one year). According to the different perspectives of operational risk measurement, these quantitative models can be divided into two major categories: Bottom-up model and bottom-up model. The top-down model is based on the assumption that the company's internal operating conditions are not well understood, and it is used as a black box to analyze its market value, revenue, cost and other variables, and then calculate the value of operational risk. The bottom-up model is after an in-depth study of the operating conditions of various business units and loss events of various operational risks, and then considering the operational risks of each department separately, and finally adding them up as the operational risk of the entire enterprise . It is worth pointing out that the measurement effects of these models have yet to be tested, and truly mature and accurate models have not yet appeared. The reality in China is that it is difficult to obtain data from financial institutions. Only the public annual reports of financial institutions can be used, so it is better to use a top-down model.

2. The main problems in the quantitative management of operational risk in China's commercial banks

Under the current management level of China's commercial banks, it is still a challenge to establish a quantitative model of operational risk with reference to the New Basel Accord. Specifically, to solve the evaluation and management of operational risk with a quantitative model, the following problems still exist:

1. A good risk management culture has not yet been formed, and a lack of management awareness of operational risk. Risk management culture is the "soft factor" in the internal control system, and it plays a very important role in the management of commercial banks. The history and experience of the development of the financial industry shows that the problems in risk management are not due to the lack of risk management systems, policies and procedures, but because the backward corporate culture, especially the risk management culture, cannot make these systems, policies, and procedures truly Play its due role. The specific analysis is manifested in three aspects: First, the attention to operational risk is relatively short, the connotation and extension of the concept of operational risk has not been fully understood, and insufficient attention has been paid to market risk and operational risk. Second, there are flaws in the concept of operational risk management, resulting in an incomplete operational risk management framework, inadequate management measures, and a single management technique. Third, a good operational risk management culture has not yet been formed in the bank. The particularity of operational risk determines that if the bank wants to effectively manage operational risk, it must establish a full-fledged operational risk management culture internally. Ensure the effectiveness of various operational risk control measures.

2. Insufficient information disclosure, which is far from the requirement of quantitative analysis. At present, all sectors of the society are paying special attention to the occurrence of bank incidents. Chinese commercial banks have now incorporated legal and compliance operations into the assessment of the responsibility system of business leaders of branch offices, and are linked to various resource allocations. Out of various considerations, some banks have adopted a "little matter" strategy for a large amount of operational risk with small losses, and must also "carefully process" the risk of large losses when reporting, making it difficult for decision-makers to really understand the operation. The true picture of the risks, especially those with small losses but serious operational risks. Information cannot be uploaded in a timely and comprehensive manner within the bank, and the opportunity for early action is lost. Omissions in statistics and reporting of operational risk loss events hinder the use of risk quantification tools, are not conducive to risk identification, assessment and scientific measurement, and cannot meet the development needs of operational risk management.

3. Existing personnel have difficulty meeting operational risk management requirements. The rapid development of information technology and financial engineering has greatly improved the operational risk management level and management efficiency of commercial banks. Therefore, having a group of managers who have a full understanding of operational risks, are skilled in using computers, and have a wealth of knowledge in risk management is the basis and prerequisite for effective management. At present, China's commercial banks are extremely lacking in operational risk management talents, and existing risk personnel Focusing on credit risk management, there is little in-depth research on operational risk management, and even the general conditions of professional operational risk management personnel are not available. At present, there are very few compound talents who understand both computer technology and financial engineering knowledge, let alone experienced operational risk management experts. It can be said that the lack of talents is the biggest constraint in the development of operational risk management in China's commercial banks.

4. A large amount of data collection and data processing places high requirements on the banking system. Establishing a quantitative model of operational risk has clear requirements for data quality, completeness, and historical observation period. In order to ensure the validity of the model, Chinese commercial banks are faced with a large amount of data cleaning and supplementary work.At the same time, they need to establish complete, strict and consistent data standards and corresponding data processing platforms that meet the requirements of the model, and formulate data quality management. Regulations to ensure the timeliness, accuracy, and comprehensiveness of data. Such a large model operation and maintenance work poses severe challenges to existing systems.

Suggestions on Improving the Operational Risk Measurement Management of Chinese Commercial Banks

In the long run, the operational risk measurement of China's commercial banks should shift from qualitative to quantitative-based modern risk measurement based on qualitative and quantitative measures, and develop an internal control system and risk prevention system for operational risks, and choose appropriate The risk measurement model provides scientific measurement and prediction of operational risks, and minimizes the losses caused by risks. Specifically, China's commercial banks can improve operational risk measurement from the following aspects:

1. Flexible choice of measurement method. Basic indicator methods, standard methods, and advanced measurement methods can be used for operational risk measurement.However, these methods have their own characteristics and need to be selected according to actual conditions:

The basic index method is not an effective method for measuring operational risk. This method has the advantage of being simple and easy to implement, but the basic index method is not suitable as the main tool for measuring the operational risk of China's commercial banks. The main reasons are: First, the exposure between operational risk and total revenue is not closely related. Second, a single indicator simply cannot accurately reflect complex operational risks. Therefore, the single indicator method is not an effective method for measuring operational risk, and can only be used as a method for the primary stage of operational risk measurement management. Adopting such a less sensitive method will increase capital requirements and is not conducive to the improvement of the operational risk management level of China's commercial banks.

The standard method can be regarded as the short-term goal of the quantitative management of operational risk in China's commercial banks. From a technical point of view, the standard method is not complicated, but while using the standard method, banks must meet a series of eligibility standards while meeting the requirements of good practices in operational risk: In terms of risk measurement and recognition, appropriate risks must be established Reporting system that tracks data on operational risks by business type; independent risk control, audit departments, and operational risk management and control procedures must be established in risk management and control; the board of directors and senior management should actively participate in risk management; risk management system Documents are available. These are currently difficult for China's commercial banks, but they are not unattainable, and they need to work hard to strengthen operational risk management.

Advanced measurement method is the ultimate goal of operational risk management of commercial banks in China. The new Basel Accord stipulates that, in addition to meeting the eligibility criteria of the standard method, banks using advanced measurement methods must also meet higher requirements: in terms of risk measurement and confirmation, a good internal loss reporting system and loss database must be established, with operations Risk measurement methods and employees who have mastered the measurement methods, have procedures for uniformly identifying events in different periods, etc .; must use "backtesting" in risk management and control to establish loss data and data calculation results as risk status reports, management reports, internal capital Configuration goals and basis for risk analysis. At present, China's commercial banks lack the experience of scientific and quantitative management of operational risk, and the accumulation of loss data is insufficient. Therefore, they do not have the ability to use this method for the time being. In addition, the high application cost of this method has also increased the difficulty of implementing advanced measurement methods. However, as a popular method actively explored and used by active foreign banks, this method deserves our close attention.

In view of the different advantages and disadvantages of different measurement methods, comprehensive use of different methods for judgment and mutual citation may be the best method. At present, there are still considerable differences and disputes about the model of operational risk, but one thing is the same, that is, the basic goal is the same, that is, to measure the loss that may be caused by operational risk, and allocate capital accordingly, and propose management Approach to operational risk. In this calculation process, it is important to determine the departments and areas where different types of operational risks occur, the possibility of such risks, and the losses that may result from such risks.

For the time being, we should base our efforts on improving the level of management based on the use of basic index methods, and move closer to the standard methods as soon as possible. At the same time, we should actively create conditions for boldly using advanced methods. At the same time, it is suggested that multiple measurement methods can be used in combination within the bank depending on the business. For example, for the retail business, payment and clearing business, and agency, trust, and asset management businesses that have relatively high operational risks, strengthen the collection and consolidation of loss data, and strive to use advanced operational risk measurement methods that are suitable for them as much as possible. Smaller corporate and institutional businesses can be measured using simple methods such as the standard method. Flexible measurement strategies are conducive to improving the risk measurement level of Chinese commercial banks, and promoting the exploration and application of advanced risk management methods.

2. Strengthen information construction, actively introduce or develop operational risk management systems, and improve operational risk measurement capabilities. At present, because it is difficult for Chinese commercial banks to subdivide business types according to the requirements of the new agreement, they can only use the simplest basic indicator method to calculate the capital requirements for operating risk. This does not meet the "bank operating risk management system in the new agreement". The principle of "standardization and complexity should be commensurate with their risk status" is also not conducive to the improvement of capital adequacy ratio. Actively introducing or developing an operational risk management system is an important way to improve the operational risk measurement level of our commercial banks. Although the current international method of measuring operational risk is not mature, many banks, consulting companies, and professional software companies have launched some operational risk management systems.The more common are JP Morgan's Horizon system, Algo's OpVant age system, Comit's OpRisk Suite system, SAS's operational risk management system, etc. The introduction of these management systems requires attention to whether the system design conforms to the bank's own business characteristics, the authority, verifiability, and scalability of the model technology used by the system. In addition, you can also customize the operation risk management system according to the actual situation of the bank through outsourcing or employing consulting companies. However, no matter which method is adopted, we must always establish the idea of comprehensive risk management, fully consider the relationship between operational risk management, market risk management, and credit risk management, and pay attention to the integration of various risk management systems.

3. Strengthen the construction of risk management culture. Advanced risk culture can effectively prevent operational risks, and also provides strong support for scientific operational risk measurement. Operational risks include a wide range and variety, involving various business areas of the bank. People at all levels are responsible for controlling operational risks. This requires all employees of the bank to fully understand the importance of preventing operational risks, especially Senior management should have a comprehensive and clear understanding of operational risks. First, we must strengthen the construction of internal control systems, reengineer business processes based on risk management, and fully evaluate and re-examine the system's enforceability and operability and the effectiveness of risk prevention. Second, we must strengthen personnel risk control capabilities so that all employees have a clear understanding of the head office's operational risk management policies, have a sufficient understanding and mastery of risk sensitivity, tolerance level, and control measures, and reflect them in business activities. Third, we must comprehensively improve the quality of employees' ethics, risk knowledge, and business proficiency, especially to enhance the compliance management awareness of grassroots employees. Fourth, we must establish a comprehensive business continuity plan to reduce the impact of disaster events on the normal operations of banks. In short, the construction of an operational risk culture is critical to creating a good operational risk management and control environment. Establishing an operational risk internal control culture can create a good operational risk measurement environment and create a good soil for operational risk measurement.

4. Actively reserve talent. Among the many elements of operational risk management, people are the most decisive factor, because the identification, prevention, control and management of operational risk involves a wide range of fields and a wide range of knowledge, which requires a lot of proficiency in foreign languages and mathematical statistics, and familiarity with the various businesses of the bank High-level compound talents. Therefore, we must adhere to people-oriented, comprehensively improve the quality of employees, and cultivate and establish a high-quality, composite operational risk manager team as soon as possible, committed to efficient, high-end, advanced operational risk management. The first is to equip operational risk management professionals to strengthen the training of operational risk managers. The second is to establish an operating risk manager employment certificate system and strict employment standards to ensure that risk managers can truly be competent to manage operational risks and play their due management role. The third is to openly recruit a group of highly educated professional operational risk management talents, give full play to their functions of comprehensive monitoring of line operational risks, and establish an effective incentive mechanism. It is necessary to implement the survival of the fittest through a reasonable incentive and restraint mechanism, promote competition for employment, establish a personnel management system that can enter, exit, and go up and down, promote the orderly flow of talents, and make the best use of talents, and make the best use of them, and form professional competition. pressure.