Present study deals with operational risks of banks (i.e. as Basel II defines “the risk of loss resulting from inadequate or failed operation of people, systems, and processes or from external events”). The complexity of financial institutions and the regulatory efforts make the analysis of the operational risk necessary. The main message of this book is that institution size has an important effect on operational risk exposure and management. Firstly, a well-behaving stylised stochastic process based approach underpins the applicability of Poisson frequency and fat-tailed loss distributions, however a method built from historical data on a small sample may result in estimation bias. Secondly similarly to the results for other countries the total operational risk losses in a given period are significantly correlated with gross income-based size of banks in Hungary as well, mainly driven by frequency. Finally, it is found that larger institutions are more inclined to use advanced operational risk management methods. This might be a favourable tendency from systemic risk point of view, as institutions with potentially higher system risk tend to apply more conscious risk management.
The recent financial crises determined the Basel Committee to improve the risk controls for banks in general and operational risk. Operational risk has received increasing attention from financial institutions and policymakers, large losses have resulted in the failure of large banks and investment firms. This research examine the magnitude of operational risk in the lending process with views of member of twelve banks. It seeks to resolve the extent of operational risks involved in lending and capital allocated to risk by Basel II in banks is set at 15% for operational risk. The literature related to risk in the lending process refers to the systematic and organized decision making aspect that effectively identifies risks and efficiently reduces risks of failure achieving the objectives. Result of the study in rethinking capital allocation to risks within businesses and strategy reviews in banks. Banks consider assessment of operational risk to reduce risks on business. Failure of banks in obtaining required documentation during the lending process, proper notarization and collateral lead to risk when the transaction defaults which leads to losses and charges on credit risk.
The management of operational value-at-risk (OpVaR) in financial institutions is pre-sented by means of a novel, robust calculation technique and the influence of this value on the capital held by a bank for operational risk. A clear distinction between economic and regulatory capital is made as well as the way OpVaR models may be used to calculate both types of capital. Under the Basel II Advanced Measurement Approach (AMA) banks may employ OpVaR models to calculate regulatory capital; this study therefore illustrates the differences in regulatory capital when using the AMA and the Standardised Approach (SA) by means of an example. Economic capital is found to converge to regulatory capital using the AMA, but not if the SA is used.
In view of growing complexity of banks’ business and the dynamic operating environment, risk management has become very significant, especially in the financial sector. Risk at the apex level may be visualized as the probability of a banks’ financial health being impaired due to one or more contingent factors. While the parameters indicating the banks’ health may vary from net interest margin to market value of equity, the factor which can cause the important are also numerous. For management of risk at corporate level, various risks like credit risk, market risk or operational risk have to be converted into one composite measure. Therefore, it is necessary that measurement of operational risk should be in tandem with other measurements of credit and market risk so that the requisite composite estimate can be worked out. So, regarding to international banking rule (Basel Committee Accords) and RBI guidelines the investigation of risk analysis and risk management in Co-Op banks is being most important.
This book highlights the essentials of Operational Risk management as applied to the Banking industry in Ghana. An empirical study that seeks to deeply inform the reader on the extent to which banks in Ghana report operational risk by way of disclosures. It is a' must-read' for all students and professionals of banking and financial services interest as a basis of intellectual comparison of what pertains in the developed and developing world contexts. The book highlights the post 2008 global banking and financial crisis regulations as contained in the Basel Accords. It presents a true value for money for every reader.
In research performed I watched to present methods of classification of loans and methods of establishing internal ratings within the banks. The result of the method of classifying assets consists in identifying good quality loans and their separation by the nonperforming loans. I also conducted an analysis of the situation of currency risk in case of the commercial banks. Thus I determined a set of indicators that can be measured both at the level of territorial units as well as the level of Central Bank. Another important issue addressed in the paper is the importance of ensuring solvency of the bank in overtaking difficulties generated by the financial crisis. In the chapter relating to the measurement the risk of interest rate I identified a technique used in banking to reduce interest rate risk, named GAP model or model of discrepancy between assets and liabilities of banks. In terms of reduction of the liquidity risk I presented a method that allows monitoring the indicators of liquidity on maturity bands. In the chapter concerning to management of the operational risk I presented a new method for managing this type of risk, respectively the insurance of operational risk.
This monograph focuses on the liquidity risk of commercial banks in the Visegrad countries in the period from 2000 to 2011. This risk is comprehensively evaluated with several different methods: six liquidity ratios, panel data regression analysis with fixed effects, probit model and scenario analysis. The liquidity position, net position on the interbank market and strategy of liquidity risk management differ significantly in individual Visegrad countries. The capital adequacy is the most important determinant of bank liquidity. However, some other factors such as size of the bank, credit portfolio quality or macroeconomic development are significant as well. All three tested stress scenarios would have a negative influence on bank liquidity. A run on the bank would have most serious impact on the bank liquidity in all Visegrad countries. The use of committed loans is the second most severe scenario for Czech and Slovak banks and a crisis confidence in the interbank market for Hungarian and Polish banks.
Many central banks, especially central banks of the developed countries played critical role during the crisis in maintaining financial stability and supported macroeconomic policy of the government. Hence, these two goals got specific weight and importance in the central banks regulation, certainly without jeopardizing the main goal - maintenance price stability. In order to accomplish these goals central banks might have very high level of independence, transparency and accountability which are certainly the base of its efficient management and governance. Considering these facts, the question we try to elaborate is whether central banks taking other objectives, besides its basic objective - maintaining price stability, are "forced", in some way, to reduce its level of operational efficiency, which means larger volume of human, financial and technical costs. This book may be useful to professionals in central banks and universities, or anyone interested in macroeconomics and central banking.
This work is a literature review that elaborates on the topic of operational risk in financial institutions, its characteristics, measurement, management and underlying regulations. Can proper operational risk management decrease losses in financial institutions? Question that will be the heart of the book and answered accordingly in the conclusion based on secondary sources. In the first two chapters the concept and definition of operational risk will be described following by the third chapter elaborating on the regulatory requirements in the context of operational risk. In the fourth chapter the main tools of operational risk management will be introduced. Finally, in the fifth chapter three cases of operational risk failures were chosen in order to present the importance of problematic explained in preceding chapters.
The recent turmoil on financial markets has made evident the importance of efficient liquidity risk management for the stability of banks. The measurement and management of liquidity risk must take into account economic factors such as the impact area, the timeframe of the analysis, the origin and the economic scenario in which the risk becomes manifest. Basel III, among other things, has introduced harmonized international minimum requirements and has developed global liquidity standards and supervisory monitoring procedures. The short book analyses the economic impact of the new regulation on profitability, on assets composition and business mix, on liabilities structure and replacement effects on banking and financial products.a??
This study examines transparency and risk reporting issues in Islamic banks. Based on a postal questionnaire survey of 28 Islamic banks in 14 countries, supplemented by a follow-up e mails and interviews, the study addresses the following specific issues on: (a) the nature of risks that Islamic banks are exposed; (b) the risk measurement and management used by Islamic banks; (c) the information required by Islamic bank supervisors to monitor the risk profile of Islamic banks; (d) the importance of transparency and market discipline in Islamic banks; and (e) the adequacy of current risk reporting in Islamic banks. The results of the study indicate that Islamic banks are exposed to similar risks as those in conventional banks. Furthermore, the results also reveal that the degree of the importance of the risks is also similar to those in conventional banks, except the nature of the risks.
The present study has focused on following aspects. First, an attempt has been made to examine the importance given to various types of risks being faced by Indian banks. Second, to study the risk management framework among banks, the study examines the size and ownership effect on the Risk Management Practices in banks. Third, we enumerate the growth and performance of banking sector in India since implementation of Basel I. Last issue undertaken in this study is to put forth the major challenges that are being faced by banks in India with the implementation of Basel II Accord and to suggest the procedures to face these challenges.
This book presents the results of the study on influence of Environmental Risk Management on the general performance of commercial banks in Uganda. Quantitative research approaches were adopted and a method of data collection, consisting of a survey questionnaire was used. The results from the research provide some evidence that commercial banks in Uganda incorporate environmental issues into lending decisions and are aware of environmental risks and opportunities. It further revealed that good Environmental Risk Management(ERM)contributes to better overall performance of banks and that consideration of environmental issues when making lending decisions is important to banks. The study recommended development and implementation of a comprehensive environmental risk management system and frameworks, adoption environmental management procedures, adoption of appropriate strategy and consideration of structured community participation in monitoring funded projects for enhancing ERM.
The turmoil caused by problems in the American mortgage market has served as an important reminder of the interdependency of global financial institutions. This book presents a survey of the fundamental issues surrounding risk management and shows how central banks and other public investors can create better risk management systems.
In Banking, Asset and Liability Management (often abbreviated ALM) is the practice of managing risks that arise due to mismatches between the assets and liabilities (debts and assets) of the bank. Banks face several risks such as the liquidity risk, interest rate risk, credit risk and operational risk. Asset liability management (ALM) is a strategic management tool to manage interest rate risk and liquidity risk faced by banks, other financial services companies and corporations. Banks manage the risks of asset liability mismatch by matching the assets and liabilities according to the maturity pattern or the matching of the duration, by hedging and by securitization. . Modern risk management now takes place from an integrated approach to enterprise risk management that reflects the fact that interest rate risk, credit risk, market risk, and liquidity risk are all interrelated.