New Method Reduces Operational Risk Capital for Commercial Banks Dramatically
The article discusses how commercial banks measure operational risk using credibility theory. This theory helps banks combine internal and external data to estimate operational risk more accurately. By analyzing data from Chinese commercial banks, the study found that operational risk mainly occurs in banking lines, payment and settlement products, internal fraud, and external fraud. The estimated operational risk capital for these banks ranges from 250 million to 4.9 billion yuan, which can help reduce risk and improve profitability.