scholarly journals Scenario analysis in the BNDES experience: integrating operational risk management with the measurement of capital

2018 ◽  
Vol 29 (77) ◽  
pp. 283-296
Author(s):  
Macelly Oliveira Morais ◽  
Antonio Carlos Figueiredo Pinto ◽  
Marcelo Cabus Klotzle
Keyword(s):  
Risk Management ◽  
Scenario Analysis ◽  
Operational Risk ◽  
Regulatory Capital ◽  
Operational Risk Management ◽  
Aggregate Distribution ◽  
Operational Risks ◽  
Loss Distribution Approach ◽  
Internal Loss ◽  
Comprehensive Measurement

ABSTRACT Internal operational risk models have not yet been established as a methodology for calculating regulatory capital. These models, which must be integrated with operational risk management, have been criticized for the subjectivity of some of their fundamental elements. The purpose of this paper is to demonstrate the use of the "scenario analysis" element in the Loss Distribution Approach (LDA) methodology for calculating regulatory capital relative to operational risk, based on the experience of the Brazilian Development Bank (BNDES) in integrating operational risk management with the measurement of capital. The proposed methodology, which applied the Delphi technique through questionnaires, enabled: (i) the measurement of regulatory capital considering feasible scenarios; (ii) the identification of tail and body scenarios for the aggregate distribution of losses, which are not reflected in the internal loss database; (iii) the identification and comprehensive measurement of BNDES’s operational risks; (iv) the obtainment of information that can guide risk management with regard to identifying risks that must be given prioritized treatment; (v) the development of a risk culture, with a view to involving specialists from different units; (vi) the use of a methodology that can be understood by all business experts, who are the ones that are aware of the risks of their activities.

scholarly journals Operational risk in bank governance and control: How to save capital requirement through a risk transfer strategy. Evidences from a simulated case study

2015 ◽  
Vol 5 (2) ◽  
pp. 142-159 ◽  
Author(s):  
Enzo Scannella ◽  
Giuseppe Blandi
Keyword(s):  
Risk Management ◽  
Operational Risk ◽  
Capital Requirement ◽  
Bank Capital ◽  
Regulatory Capital ◽  
Operational Risk Management ◽  
Risk Transfer ◽  
Loss Distribution Approach ◽  
Bank Capital Requirement ◽  
The Impact

Operational risk management in banking has assumed such importance during the last decade. It has become increasingly important to measure, manage, and assess the impact of operational risk in the economics of banking. The purpose of this paper is to demonstrate how an effective operational risk management provides mitigating effects on capital-at-risk in banking. The paper provides evidences that an implementation of an operational risk transfer strategy reduces bank capital requirement. The paper adopts the loss distribution approach, the Monte Carlo simulation, and copula methodologies to estimate the regulatory capital and simulate an operational risk transfer strategy in banking.

scholarly journals Roles and responsibilities for managing operational risk in a banking environment

2008 ◽  
Vol 5 (3) ◽  
pp. 34-46
Author(s):  
Jackie Young
Keyword(s):  
Risk Management ◽  
Operational Risk ◽  
Main Role ◽  
Banking Supervision ◽  
Operational Risk Management ◽  
Roles And Responsibilities ◽  
Global Institutions ◽  
Basel Committee ◽  
Operational Risks ◽  
Role Players

Operational risk management is one of the fastest growing management disciplines within a banking environment as a result of various disastrous international incidents. Subsequently, various global institutions got involved in order to ensure that the effect of similar events do not negatively influence the international industries, for example, the Basel Committee on Banking Supervision regarding banks. It is, however, a known fact that operational risks are difficult to manage, as it is not easy to quantify. Therefore, it is of the utmost importance to understand the concept of operational risk management and, more specifically, the actual roles and responsibilities of various role-players within an organisation. This paper aims to identify the main role-players involved in the management of operational risk in a banking environment and to identify their specific roles and responsibilities

scholarly journals Operational Risk Management in A Commercial Bank

2018 ◽  
Vol 7 (4.36) ◽  
pp. 524
Author(s):  
I. I.Vasiliev ◽  
P. A. Smelov ◽  
N. V. Klimovskih ◽  
M. G. Shevashkevich ◽  
E. N. Donskaya
Keyword(s):  
Risk Management ◽  
Development Strategy ◽  
Commercial Bank ◽  
Operational Risk ◽  
Strong Impact ◽  
Credit Institution ◽  
Operational Risk Management ◽  
Operational Risks ◽  
Empirical Level ◽  
Analysis And Synthesis

The existing financial and economic situation in the world and in Russia impacts the activities of all sectors of the economy, including posing challenges for banks. In the conditions of prolonged instability, the banking community has to pay great attention to the risks taken and to manage them. Among all the risks that the bank is exposed to, operational risks represent a separate group due to its specifics, a lack of a systematic approach to analysis and a lack of identification criteria requiring more detailed study. The operational risk is unique in that, although it affects virtually all areas of the credit institution, it is difficult to establish and separate it from other bank risks. It should be noted that every year there appear all new types of operational risk that have a strong impact on the activities of the credit institution due to the development of information and computer systems, the complication of the instruments of the stock market and the improvement of business methods. Therefore, regulators of all countries try to constantly improve the regulatory framework related to the management of the operational risk of a commercial bank, based on the recommendations given by the Basel Committee on Banking Supervision.The article is aimed at developing an effective system for managing the operational risk of a commercial bank.The empirical level research methods used in this article are a description of what operational risk is, its types, tools and methods of assessment; comparison of operational risk management systems in the studied banks; generalization, analysis and synthesis of the information received; the hypothetical-deductive method is used at the theoretical level.Modernization and improvement of the operational risk management system helps stabilize the bank, increase stability and increase profitability, reduce the provision of capital for operational risk, and increase the attractiveness of banking services for consumers, thus benefiting a credit institution among competitors. In today's financial environment, the effective operational risk management is inherent in the long-term development strategy. 

scholarly journals A proposed operational risk management framework for small and medium enterprises

2017 ◽  
Vol 20 (1) ◽  
Author(s):  
Micheline J. Naude ◽  
Nigel Chiweshe
Keyword(s):  
Risk Management ◽  
Small And Medium Enterprises ◽  
Relevant Literature ◽  
Management Strategies ◽  
Operational Risk ◽  
Management Framework ◽  
Operational Risk Management ◽  
Operational Risks ◽  
Risk Management Framework ◽  
Medium Enterprises

Background: The gap between small and medium-sized enterprises (SMEs) and large businesses that perform risk assessment is significant. SMEs continuously face many operational risks and uncertainties in their daily operations, and these risks threaten to reduce productivity, increase costs and reduce profits.Aim: The purpose of this article was to develop an operational risk management framework that SMEs can use to identify and analyse risks in their operations and take corrective actions to mitigate these risks.Setting: Small and medium-sized enterprises in South Africa do not view risk management as a key component of organisational success, despite evidence that businesses that adopt risk management strategies are more likely to survive and grow.Methods: The article is exploratory in nature, and a conceptual analysis approach was used to formulate the framework. This study reviewed relevant literature sources on risk published between 2002 and 2017.Results: The four process steps of risk management were used as a reference point and form the foundation for the operational risk management framework. The categories of operational; marketing; technical and financial risks were identified from a review of available literature on risk management.Conclusion: There is a dearth of research that deals with operational risk management frameworks for SMEs. The expected contribution of this article, therefore, is twofold: firstly, it is envisaged that managers or owners of SMEs could use the proposed framework as a tool to appraise and minimise their operational risks; secondly, it will add to the current body of knowledge on risk appraisal for SMEs.

Institutionalizing Operational Risk Management: An Empirical Study

2014 ◽  
Vol 29 (1) ◽  
pp. 59-72 ◽  
Author(s):  
Carol Hsu ◽  
James Backhouse ◽  
Leiser Silva
Keyword(s):  
Risk Management ◽  
Financial Institution ◽  
Technological Development ◽  
Operational Risk ◽  
Structuration Theory ◽  
Management Approach ◽  
Operational Risk Management ◽  
Operational Risks ◽  
Role Of It

This paper examines the development of operational risk management (ORM) in a financial organization, focusing in particular on the role of IT in institutionalizing the new regime. Through an interpretive case study in a major US financial institution, the paper uses Giddens’ structuration theory to examine how it adjusts to the demands of protecting itself against new operational risks. The discussion and results of our study are expressed in three propositions: (1) the regulatory context and technological development affect the shape and the outcome of ORM; (2) implementing ORM is a process of reflexive monitoring and transforming organizational practices in a financial institution; (3) the role of IT in ORM is contingent on the extant organizational structure and on the choice of risk management approach.

scholarly journals The analysis of drivers of operational risks in Nigerian commercial banks

2021 ◽  
Vol 3 (3) ◽  
pp. 1-14
Author(s):  
Olajide Solomon Fadun ◽  
Diekolola Oye
Keyword(s):  
Risk Management ◽  
Commercial Banks ◽  
Operational Risk ◽  
Primary Data ◽  
Microsoft Excel ◽  
Internal Process ◽  
Operational Risk Management ◽  
Operational Risks ◽  
It Systems

Despite the institutionalization of operational risk management in banks and the strict supervision of bank regulators, operational risk events are still on the increase. It is becoming evident to banks that there is a need to identify the drivers of this risk and nib it at the root to reduce the probability of recurrence. Hence, this study examined the drivers of operational risks in Nigerian commercial banks and the extent to which each driver contributes to operational risk. To achieve the study’s objectives, primary data were collected from the Operational Risk Management Desks of six (6) sampled commercial banks and analyzed using SPSS and Microsoft Excel. The result showed that Internal processes, IT systems and Quality of Risk Officers are determinants of operational losses in banks. The internal process was however indicated as having the most impact. The study concluded that Internal Process is the major driver of operational risk in Nigerian Commercial banks. The researcher, therefore, recommends that bank management must have defined procedures for core activities and prioritize regular review of their critical processes to reduce operational risk events and the associated costs.

scholarly journals Operational Risk Management in Financial Institutions: An Overview

2018 ◽  
Vol 8 (2) ◽  
pp. 11 ◽  
Author(s):  
Abdullah Aloqab ◽  
Farouk Alobaidi ◽  
Bassam Raweh
Keyword(s):  
Risk Management ◽  
Financial Institutions ◽  
Operational Risk ◽  
Risk Identification ◽  
Financial Risks ◽  
2008 Financial Crisis ◽  
Operational Risk Management ◽  
Operational Risks ◽  
International Regulations ◽  
The 2008 Financial Crisis

After the 2008 financial crisis, many attributed the crisis due to the inability of financial risks to manage operational risks. The period during and after 2008 was critical in providing insight on how vital operational risk management is essential to financial institutions and how best these risks can be managed. The study begins with an overview of the concept of risk and BASEL I, II and III and how they apply to financial institutions. Further, the paper discusses the growing need for operational risk management in the context of financial institutions taking into considerations various models and approaches used in the management of financial risks. Moreover, several pieces of literature discussed operational risks in the financial institutions. The paper also looks at the various methods of operational risk identification and management before concluding that for better management of operational risks in banks, there is the need to comply with both the national and international regulations and procedures.

scholarly journals OPERATIONAL RISK MANAGEMENT STRATEGIES AND THE GROWTH OF MICROFINANCE SECTOR IN KENYA

2017 ◽  
Vol 2 (2) ◽  
pp. 42
Author(s):  
Dr. James Rurigi Njuguna ◽  
Prof. Roselyn Gakure ◽  
Dr. Anthony Gichuhi Waititu ◽  
Dr. Paul Katuse
Keyword(s):  
Risk Management ◽  
Internal Control ◽  
Management Strategies ◽  
Internal Audit ◽  
Operational Risk ◽  
Operational Risk Management ◽  
Operational Risks ◽  
Use Of Resources ◽  
Policies And Procedures ◽  
Risk Management Strategies

Purpose: The purpose of this study was to establish how operational risk management strategies lead to growth of MFI sector in Kenya.Methodology: The study adopted a correlation survey research design. The population of this study was fifty seven (57) MFIs. The sampling frame was the list of MFIs provided in the AMFI website www.amfikenya.com. A sample of thirteen (17) MFIs was selected using the random sampling approach. A questionnaire and an interview schedule were the main data collection tools. Qualitative data was analyzed using content analysis whereas the quantitative data was analysed using Statistical Package for Social Sciences (SPSS) where descriptive and regression analysis were conducted to determine the relationship between enterprise risk management strategies and growth of MFIs.Findings: Findings revealed that the MFI had adequate policies and procedures to manage its operational risks and the MFI had an operations manual. The findings also indicated that the MFIs have adhered to written policies and procedures to manage operational risks in the financial operations area, procurement area, treasury area, and financial management area. Results further indicated that the MFI had effective internal control systems for detecting fraud or other significant operational risks. Finally the study findings indicated that MFI’s internal audit functions ensured effective use of resources, accurate financial reporting, and ample random spot checks of MFI branches, clients, and staff. The regression results indicated that there was a positive relationship between operational risk management strategies and MFI growth.Unique contribution to theory, practice and policy: The study recommends that the MFIs to continue practicing effective operational risk management practices such as internal control framework comprising of policies and procedures. MFIs need to uphold the existence and accessibility of operational manuals. It is suggested that adherence to written policies and procedures is positive strategy and it should be emphasized.  The internal audit functions for effective use of resources and accurate financial reporting needs to be emphasized as it had a positive effect on growth. The MFIs should also benchmark their technology with that of banks to reduce human error, to produce timely and relevant data. It is recommended that implementation of know your client (KYC) requirements should be enhanced as it has an effect on growth.

scholarly journals The analysis of drivers of operational risks in Nigerian commercial banks

2020 ◽  
Vol 2 (2) ◽  
pp. 19-35
Author(s):  
Olajide Solomon Fadun ◽  
Diekolola Oye
Keyword(s):  
Risk Management ◽  
Commercial Banks ◽  
Operational Risk ◽  
Primary Data ◽  
Microsoft Excel ◽  
Internal Process ◽  
Operational Risk Management ◽  
Operational Risks ◽  
It Systems

Despite the institutionalization of operational risk management in banks and the strict supervision of bank regulators, operational risk events are still on the increase. It is becoming evident to banks that there is a need to identify the drivers of this risk and nib it at the root to reduce the probability of recurrence. Hence, this study examined the drivers of operational risks in Nigerian commercial banks and the extent to which each driver contributes to operational risk. To achieve the study’s objectives, primary data were collected from the Operational Risk Management Desks of six (6) sampled commercial banks and analyzed using SPSS and Microsoft Excel. The result showed that Internal processes, IT systems and Quality of Risk Officers are determinants of operational losses in banks. The internal process was however indicated as having the most impact. The study concluded that the Internal Process is the major driver of operational risk in Nigerian Commercial banks. The researcher, therefore, recommends that bank management must have defined procedures for core activities and prioritize regular review of their critical processes to reduce operational risk events and the associated costs.

scholarly journals Operational Risk Management In Banking Activity

2021 ◽  
pp. 1-16
Author(s):  
Maria-Alexandra CRISTEA
Keyword(s):  
Risk Management ◽  
Banking Sector ◽  
Operational Risk ◽  
Operational Risk Management ◽  
Operational Risks ◽  
Banking Activity ◽  
Short Period ◽  
Financial Losses

A multitude of factors can create operational risks, and the possible financial losses that can be resulted in are important. The appearance of various prudential regulations for appropriate operational risk management, in a short period of time, contributed to the inclusion of this risk as one of the most significant risks in the banking sector.

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