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 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.

Impact of Ownership and Size on Operational Risk Management Practices: A Study of Banks in India

2017 ◽  
Vol 18 (3) ◽  
pp. 795-810 ◽  
Author(s):  
Deepak Tandon ◽  
Yogieta S. Mehra
Keyword(s):  
Risk Management ◽  
Factor Analysis ◽  
Data Collection ◽  
Management Practices ◽  
Operational Risk ◽  
Test Reliability ◽  
Operational Risk Management ◽  
Data Collection And Analysis ◽  
Loss Data ◽  
The Impact

The financial crisis and resulting failure of large banks worldwide has shaken the entire world. Improper management of operational risk has been touted as one of the reasons for this failure. In light of the rising importance of operational risk management (ORM) in banks, the study explores the range of ORM practices followed by a cross section of Indian banks and compares them with the banks worldwide. The study also analyses the impact of size and ownership of banks on these practices. Reliability analysis using Cronbach alpha model, Kaiser–Meyer–Olkin (KMO) measure of sampling adequacy and Bartlett’s test of sphericity was used to test reliability of questionnaire and justifies the use of factor analysis. Factor analysis was performed to extract the most important variables in ORM. The small size of bank was observed to be a deterrent to deep involvement of operational risk functionaries, collection and usage of external loss data and data collection and analysis. Further, the performance/preparedness of public sector and old private sector banks lagged behind peers in usage of key reporting components, such as risk and control self-assessment (RCSA), key risk indicators (KRI), scenarios, collection and usage of external loss data, data collection and analysis and quantification and modelling of operational risk.

scholarly journals Analysis of Impacts of Operational Risk Management Practices on Banks’ Financial Performance: Study of Selected Commercial Banks in Nigeria

2020 ◽  
Vol 9 (1) ◽  
pp. 22-35
Author(s):  
Diekolola Oye
Keyword(s):  
Risk Management ◽  
Financial Performance ◽  
Commercial Banks ◽  
Management Practices ◽  
Secondary Data ◽  
Operational Risk ◽  
Multiple Regression Model ◽  
Performance Study ◽  
Operational Risk Management ◽  
The Impact

Increase in losses borne by banks as a result of inadequate operational risk management practices and the adverse impact on banks’ financial performance has been a major concern to bank management and regulators. This study analysed the impact of operational risk management practices on the financial performance of commercial banks in Nigeria. 10-years (2008 - 2017) secondary data extracted from audited financial statements of selected commercial banks in Nigeria was used for the study. The data was analysed using the Linear Multiple Regression Model. The results showed that there is a positive relationship between operational risk management and the financial performance of banks. The findings revealed that sound operational risk management practices impact positively on the financial performance of banks. We, therefore, recommend that banks’ management should deploy adequate resources towards understanding operational risk to ensure sound operational risk management and improved financial performance of banks.

scholarly journals Do operational risk and corporate governance affect the banking industry of Pakistan?

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Komal Altaf ◽  
Huma Ayub ◽  
Malik Shahzad Shabbir ◽  
Muhammad Usman
Keyword(s):  
Risk Management ◽  
Corporate Governance ◽  
Commercial Banks ◽  
Operational Risk ◽  
Primary Data ◽  
Monitoring And Control ◽  
Content Type ◽  
Operational Risk Management ◽  
And Control ◽  
The Impact

PurposeDue to increase in operational risk, banks are facing huge losses. In order to avoid losses, banks need to manage operational risk. This study aims to analyze the impact of operational risk management (ORM) processes, which include identification, assessment, analysis, monitoring and control in the presence of corporate governance (CG) that can also contribute to effective ORM practices.Design/methodology/approachOperational risk management processes are used to manage operational risk along with CG. Primary data are collected through questionnaire from (167) operational risk managers of commercial banks. Multiple linear regressions has been run to analyze the data.FindingsResults indicate significant impact of CG and operational risk identification (ORI), monitoring and control on ORM practices in commercial banks of Pakistan.Originality/valueThe study suggests policy makers to improve the ORM framework by CG. Beside this, in order to lessen operational risk, proper identification, monitoring and control of operational risk could also contribute.

scholarly journals Impact of Ownership Structure and Firm Size on the Operational Risk Management of Islamic Banks in Pakistan

2021 ◽  
Vol 4 (1) ◽  
pp. 209-217
Author(s):  
ADNAN ◽  
Dr. MUHAMMAD IBRAHIM KHAN ◽  
Dr. MUHAMMAD IBRAHIM KHAN ◽  
SYED IMRAN KHAN
Keyword(s):  
Risk Management ◽  
Firm Size ◽  
Ownership Structure ◽  
Stock Exchange ◽  
Operational Risk ◽  
Islamic Banks ◽  
Data Set ◽  
Operational Risk Management ◽  
Minimum Capital ◽  
The Impact

This study investigates the impact of ownership structure and firm size on the operational risk management (ORM) in the context of Islamic banks in Pakistan. ORM is the excess capital acquired after subtracting actual capital from minimum capital required for handling operational risk. While, the bank size is measured as deposit plus advances or log of total assets. The Basic Indicator Approach (BIA), and Standardize Approach (STA) is used to measure the minimum capital required for managing operational risk. A panel data set of 19 Islamic banks listed on the Pakistan Stock Exchange (PSX) is analyzed over the period from 2012 to 2016.Three important observations are provided by the results; first increase in the size of the Islamic banks tend to lower the surplus capital maintain by banks for managing operational risk. Second, a significant positive relationship is reported between excess capitals required for managing operational risk and public owned Islamic banks. Third, the results are reported as robust as all three regression model provided similar results.

scholarly journals Operational Risk Management and Customer Complaints in Omani Banks

2021 ◽  
Vol 5 (1) ◽  
pp. 200-210
Author(s):  
Rawan Khamis AL-kiyumi ◽  
Zamzam Nasser AL-hattali ◽  
Essia Ries Ahmed
Keyword(s):  
Risk Management ◽  
Commercial Banks ◽  
Negative Impact ◽  
Operational Risk ◽  
The Other ◽  
Operational Risk Management ◽  
Customer Complaints ◽  
A Value ◽  
The Impact ◽  
The Relationship

The aim of this research is to analyze the relationship between operational risk management and customer complaints in Omani banks. Initially, the current research carried out a quantitative approach on the concepts which connect the variables of the current research, where the data have been collected via a survey on commercial banks in Oman. The findings demonstrate that the operational risk management has a negative and significant link with customer complaints due to there is a proper manner in dealing with risks. On the other hand,  the findings revealed that there is a negative impact on absence to deal with risks facing Omani banks. Also, it has been noted that in the event of an increase in operational risk management, customers' complaints are decreased. The current research has added a value and notable contribution lies in its elucidation for the importance of the impact of operational risk management on customer complaints in Omani banks

Relationship between operational risk management, size, and ownership of Indian banks

2016 ◽  
Vol 42 (10) ◽  
pp. 930-942 ◽  
Author(s):  
Sirus Sharifi ◽  
Arunima Haldar ◽  
S.V.D. Nageswara Rao
Keyword(s):  
Risk Management ◽  
Financial System ◽  
Operational Risk ◽  
Developed Countries ◽  
Content Type ◽  
Operational Risk Management ◽  
Minimum Capital ◽  
Indian Banks ◽  
High Level ◽  
The Impact

Purpose The purpose of this paper is to analyse the relationship between operational risk management (ORM), size, and ownership of Indian banks. This is important in the context of financial crisis experienced by developed countries due to lax regulation. Design/methodology/approach ORM practices of Indian banks are proxied by excess capital (over the required minimum capital for operational risk). Size of a bank is measured as deposits plus advances. Our sample includes 61 Indian banks during the period from 2010 to 2013. The authors empirically examine the impact of bank size on excess capital using panel data regression model. Findings The results suggest that size of Indian banks is inversely related to excess capital held by them for managing operational risk. The inverse relationship implies that smaller banks hold higher excess capital over the required minimum as per Basel norms. There is no significant relationship between ownership (public, private and foreign) and excess capital held by banks for managing operational risk. Practical implications The study has implications for Indian banks given the high level of losses due to bad loans, and the implementation of Basel III norms by the central bank, i.e. Reserve Bank of India. Social implications The study has implications for Indian financial system as a large percentage (about 33 per cent) of household savings are deployed in deposits with commercial banks and other financial institutions. The bank failure(s) can have disastrous consequences for the Indian economy as the capacity of the Indian financial system to withstand such shocks is highly doubtful. Originality/value There is very little evidence on ORM practices of Indian banks, and its relationship with size and ownership. The study assumes significance in the context of significant changes in the institutional and regulatory framework.

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