scholarly journals Internal Controls and Credit Risk in European Banking: The Basel Committee on Banking Supervision Framework Approach

2020 ◽  
Author(s):  
Ellis Kofi Akwaa-Sekyi
Keyword(s):  
Financial Crisis ◽  
Credit Risk ◽  
Internal Control ◽  
Internal Controls ◽  
Banking Supervision ◽  
Basel Committee ◽  
Operational Risks ◽  
Control Framework ◽  
Governance Practices ◽  
European Banking

Poor corporate governance practices have been cited as contributory to the 2007 global financial crisis. The chapter explores a qualitative self-regulation approach to address a major risk facing banks using the Basel Committee on Banking Supervision (BCBS) framework of internal controls. The study examines the effect of the qualitative principles of the BCBS internal control framework on credit risk. Corporate institutions use internal control frameworks to address the most operational risks, but the current study hypothesizes a possible relation with the credit risk. This research covers banks from selected EU countries covering some period before and after the 2007 financial crisis using a fixed-effect model. We report a significant relationship between board functions and activities, board structure and board monitoring, and credit risk. The results indicate that investment in high-risk assets, bank profitability and board chair being ex-CEO increases credit risk in European banking. The chapter extends the scope of a previous work that used the elements of the COSO internal control framework on a single country. This quantitative measure of qualitative constructs of the framework complements existing research that uses algorithms and simulations to study credit risk.

scholarly journals Calculating capital requirements for operational risk

2021 ◽  
Vol 22 (1) ◽  
Author(s):  
Gerd Waschbusch ◽  
Sabina Kiszka
Keyword(s):  
Financial Crisis ◽  
Operational Risk ◽  
Capital Requirements ◽  
Banking Supervision ◽  
Future Measurement ◽  
Basel Committee ◽  
Operational Risks ◽  
Increased Risk ◽  
Risk Potential ◽  
Measurement Approach

Operational risks have become increasingly important for banks, especially against the background of growing IT dependency and the increasing complexity of their activities. Further-more, the corona pandemic contributed to the increased risk potential. Therefore, banks have to back these risks with own funds. There are currently three measurement approaches for determining the capital requirements for operational risk. In recent years, and especially during the Great Financial Crisis of 2007/2008, however, some of the weaknesses inherent in these approaches have become apparent. Thus, the Basel Committee on Banking Supervision revised the current capital framework. Therefore, this article examines the various measurement approaches, addresses inherent weaknesses and moreover, presents the future measurement approach developed by the supervisory authorities.

scholarly journals RISIKO OPERASIONAL BANK DAN PERMODELANNYA

2019 ◽  
Vol 1 (1) ◽  
pp. 28-43
Author(s):  
Iwan Lesmana
Keyword(s):  
Risk Management ◽  
Management Practice ◽  
Operational Risk ◽  
Internal Controls ◽  
Banking Supervision ◽  
Risk Models ◽  
Basel Committee ◽  
Operational Risks ◽  
Indicator Approach ◽  
Measurement Approach

Managing bank’s operational risks becoming an important feature of sound risk management practice in modern financial markets. The most important types of operational risk involve breakdown in internal controls and corporate governance, which could lead to financial losses through fraud, error or failure to perform. Development of statistic has accelarated banks to create internal operational risk models in different ways. Although those models created in different ways, they surely use the pattern of risk management that is developed by Basel Committee on Banking Supervision. Basel Committee on Banking Supervision has proposed three increasingly sophisticated approaches of operational risk, i.e basic indicator approach, standardized approach and advanced measurement approach. Applying those approaches will help banks to eliminate the operational risk, that will lead them to a better intermediation process.

Corruption as distinct crime: the need to reconceptualise internal control on controlling bureaucratic occupational fraud

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Ach Maulidi ◽  
Jake Ansell
Keyword(s):  
Local Government ◽  
Internal Control ◽  
Local Governments ◽  
Internal Controls ◽  
Financial Statement Fraud ◽  
Content Type ◽  
Practical Applications ◽  
Occupational Fraud ◽  
Asset Protection ◽  
Control Framework

Purpose The purpose of this study is to provide theoretical guidance that enables local governments to deal with occupational fraud. Design/methodology/approach The quantitative approach is used to examine the efficacy of the Committee of Sponsoring Organisations of the Treadway Commission (COSO) internal control framework in tackling occupational fraud in local government. To achieve the goals, the authors performed a survey of the Indonesian auditor institutions. Findings It is not appropriate to argue that all types of local government fraud can be deterred by a single internal control. The study suggests that COSO internal controls are not effective for dealing with corruption cases. However, the authors do find the efficacy of those controls are obvious for controlling asset misappropriation and financial statement fraud. This result indicates that if the COSO internal control framework is only designed for routine financial control and asset protection, it significantly and negatively influences its efficacy to deal with occupational fraud. This study has both theoretical and managerial implications, discussed separately. Originality/value In the field of prevention, the authors cannot make generalised theories and approaches for dealing with occupational fraud. Whilst previous authors have offered fraud deterrents in terms of internal controls, they have failed to realise the need to understand their effectiveness for particular forms of fraud. This paper sheds light on the effectiveness of internal controls in achieving their goals. This has both practical applications and stimulates theoretical insights.

Part II The Financial Crisis of 2007–2011, 9 The Initial Response to the Financial Crisis by the EU and Elsewhere

2018 ◽  
Author(s):  
Mccormick Roger ◽  
Stears Chris
Keyword(s):  
Financial Crisis ◽  
European Commission ◽  
Financial Stability ◽  
Financial Regulation ◽  
Initial Response ◽  
Banking Supervision ◽  
Basel Committee ◽  
Regulation And Supervision ◽  
European Financial Regulation ◽  
The Eu

This chapter discusses the various laws, regulations, and comparable measures that were passed or proposed in response to the financial crisis in the EU and elsewhere. It covers the responses of the de Larosière Report, G20, the Basel Committee on Banking Supervision, and the Financial Stability Board. The de Larosière Report, for instance, was commissioned by the President of the European Commission in October 2008 and delivered on 25 February 2009. The report sought ‘to give advice on the future of European financial regulation and supervision’ and has formed the basis of many of the responses to the financial crisis at EU level. The G20 issued a comprehensive communiqué on the crisis at the London ‘Summit’ of 2 April 2009, covering a number of macro-economic and other ‘architectural’ issues.

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 An Analysis of Revenue Cycle Internal Controls in Ghanaian Universities

2015 ◽  
Vol 2 (2) ◽  
pp. 1
Author(s):  
Justice Ray Achoanya Ayam
Keyword(s):  
Internal Control ◽  
Empirical Studies ◽  
Internal Controls ◽  
Primary Data ◽  
Educational Institutions ◽  
Control Effectiveness ◽  
Control Framework ◽  
Research Outcome ◽  
University Colleges ◽  
Revenue Cycle

While corporate organisations in recent years have experienced increasing demands for more effective and efficient internal controls aimed at strengthening and enhancing the reliability of financial statement there exist very little empirical studies focusing on the application of the five components of the COSO control framework in Revenue Cycle Internal Controls in Ghanaian University. The study is relevant in increasing the understanding and evaluating internal control effectiveness of Ghanaian Universities. The purpose of this research paper is to assess the level of effectiveness of the Revenue Cycle Internal Control Systems of Universities in Ghana using the Committee of Sponsoring Organisation of the Treadway commission (COSO) control framework in order to provide the basis for streamlining and improving controls in the Universities in Ghana. The study uses primary data collected through a survey instrument from respondents sampled from Universities and University Colleges. The results indicate that all five components of the COSO framework were in place and functioning effectively. The sampled population consist of Ghanaian Universities only, consequently the research outcome may not necessarily represent all Universities in the world. Only selected Universities and University Colleges in Ghana were included in the research, therefore the findings of this study cannot be attributable to all Higher Educational Institutions in Ghana.

Using a Movie to Study the COSO Internal Control Framework: An Instructional Case

2008 ◽  
Vol 22 (1) ◽  
pp. 63-76 ◽  
Author(s):  
Arline Savage ◽  
Carolyn Strand Norman ◽  
Kathryn A. S. Lancaster
Keyword(s):  
Internal Control ◽  
House Of Representatives ◽  
Financial Institution ◽  
Internal Controls ◽  
Publicly Traded ◽  
Accounting Firms ◽  
Publicly Traded Companies ◽  
Sarbanes Oxley ◽  
Control Framework ◽  
Accounting Graduates

Following enactment of the Sarbanes-Oxley Act (SOX) of 2002 (U.S. House of Representatives 2002), public accounting firms and publicly traded companies are much more focused on internal controls. Accordingly, many accounting graduates will be asked to evaluate, document, and perhaps test the adequacy of an organization's internal control structure. The Committee of Sponsoring Organizations' (COSO 1992) Internal Control—Integrated Framework is the most widely used tool for this purpose. This instructional case, based on the movie, Rogue Trader, gives students the opportunity to see the consequences of lax corporate governance and weak internal controls at the Barings Bank. Students view the movie and then use the COSO framework to critically analyze the collapse of a well-established financial institution.

Sunshine Center: An Instructional Case Evaluating Internal Controls in a Small Organization

2010 ◽  
Vol 25 (4) ◽  
pp. 709-720 ◽  
Author(s):  
Sandra K. Fleak ◽  
Keith E. Harrison ◽  
Laurie A. Turner
Keyword(s):  
Child Care ◽  
Financial Reporting ◽  
Internal Control ◽  
Care Center ◽  
Internal Controls ◽  
Fraud Triangle ◽  
For Profit ◽  
Not For Profit ◽  
Control Framework ◽  
Internal Control Weaknesses

ABSTRACT: Management and auditors face increased responsibilities to evaluate internal control and assess the risk of fraud. This case provides the opportunity to evaluate internal controls and the possibility of fraud in a very small not-for-profit child care center, a setting that is easy to understand. The first goal of the case is to identify internal control weaknesses by applying the COSO internal control framework in an environment that lacks many aspects of internal control. Interactions among the five components of the COSO framework provide the basis for analyzing internal control. The case requires students to consider possible misappropriation of funds using the fraud triangle. A secondary goal of the case is to introduce financial reporting for a not-for-profit organization as a means of accountability.

scholarly journals Internal controls and credit risk relationship among banks in Europe

2017 ◽  
Vol 13 (1) ◽  
pp. 25 ◽  
Author(s):  
Ellis Kofi Akwaa-Sekyi ◽  
Jordi Gené Moreno
Keyword(s):  
Credit Risk ◽  
Internal Control ◽  
Fixed Effects ◽  
Statistical Tests ◽  
Agency Problem ◽  
Internal Controls ◽  
Corporate Image ◽  
Quantitative Approach ◽  
Average Risk ◽  
Control Mechanisms

Purpose: The study purport to investigate the effectiveness of internal control mechanisms, investigate whether evidence of agency problem is found among banks in Europe and determine how internal controls affect credit risk.Design/methodology/approach: Panel data from 91 banks from 23 European Union countries were studied from 2008-2014. Hausman’s specification test suggest the use of fixed effects estimation technique of GLS. Quantitatively modelled data on 15 variables covering elements of internal controls, objectives of internal controls, agency problem, bank and country specific variables were used.Findings: There is still high credit risk in spite of measures being implemented by the European Central Bank. Banks have individual entity factors that increase or decrease credit risk. The study finds effective internal control systems because objectives of internal controls are achieved and significantly determine credit risk. Agency problem is confirmed due to significant positive relation with credit risk. There is significant effect of internal controls on credit risk with specific variables as risk assessment, return on average risk weighted assets, institutional ownership, bank size, inflation, interest rate and GDP.Research limitations/implications: Missing data prevented the use of strongly balanced panel. The lack of flexibility with using quantitative approach did not allow further scrutiny of the nature of variables. However, statistical tests were acceptable for the model used. The study has implications for management and owners of banks to be warry of agency problem because that provides incentive for reckless high risk transactions that may benefit the agent than the principal. Management must engage in actions that profile the company better and enhances value maximization. Rising default risk has tendency to impair corporate image leading to loss of reputational capital.Originality/value: The study provides the use of quantitative approach to measuring certain phenomena within the discipline of internal controls. The study adds to a previous study by same authors and confirming the agency problem in a different approach. 

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