Aggregating Operational Risk for Chinese Commercial Banks

Due to the new regulatory guidelines known as Basel 11 for banking, the financial industry is looking for qualitative approaches to and quantitative models for operational risk. For Chinese commercial banks, it is urgent to improve the operational risk management. Using the 543 public reported operational loss data from 1994 to 2006 of Chinese commercial banks, we simulate the annual operational loss distribution of different risk types with peak over threshold, get different operational risk capital charges and interval estimations at high quantile levels, aggregate risk by risk types to total loss, compared to the annual loss and the capital of Chinese commercial banks, it is rather reasonable. The result may help the banks to allocate appropriate capital to different loss and to improve internal control of banks.