An analysis of the determinants of the operational risk in Chinese commercial banks

With the increasing trend of the operational risk events in Chinese commercial banks, the operational risk management of a commercial bank is very essential. There has been many methods for controlling credit risk and market risk in Chinese banking industry, however, the ability of managing operational risk is still weak in China. The reason for this is that few experts engage in the study of operational risk. If the determinants of operational risk can be researched explicitly, the operational risk management of Chinese commercial banks will benefit from it. Therefore, this paper aims to analyze the relationships between the operational risk capital charge that is an indicator of operational risk and the factors from four perspectives, which are the bank-specific characteristics, corporate governance, internal control and macroeconomic environment. By using the data of 40 commercial banks in China from 2013-2017 to build a regression model, it can be seen that the bank-specific characteristics about firm size and GDP can affect the operational risk in Chinese commercial bank. Bank nature and the headquarters of a bank also have a relationship with its operational risk. But some factors of internal control like the age of a bank is not related to operational risk. The size of the management in a bank as one of the factors about corporate governance also shows no relationship with its operational risk