The Specifics of Operational Risk Assessment Methodology Recommended by Basel II
The Specifics of Operational Risk Assessment Methodology Recommended by Basel II

Summary/Abstract: Operational risk management is a relatively new process in most of the banks. The need for managing this type of risk arose in the context of recommendations for bank supervision formed by the Basel Committee on Banking Supervision. The Basel Committee took into con-sideration the growing importance of operational risk in the field of finances and emphasized the risk management and management supervision. The Basel Committee con-nects the operational risk with the risk arising from un-suitable or unsuccessful internal processes, people, sys-tems or external incidents. In the banking sector, this type of risk was compared to credit and market risks, which are treated as most important bank risk, generating the main part of risk events in banks sector. In the sector of finances, distinctive frameworks for supervision of opera-tional risk management are beginning to form. The goal of these frameworks is to ensure an effective supervision of operational risk management in banks. In its recom-mendations on risk assessment methods, the Basel Com-mittee pays a lot of attention to the measurement of the risk level and to the administration of the risk manage-ment. The position that the Basel Committee is taking reflects the importance of operational risk management supervision in the process of establishing a structural base for operational risk management. This enables the formation of close ties between operational risk manage-ment and management supervision frameworks. These ties have to be assessed correctly before any implementa-tion of operational risk management methods in banks; therefore there is a need for the analysis of recommenda-tions of the Basel Committee on the specifics of opera-tional risk assessment methods within the context of op-erational risk management supervision. Depending on the character of bank activities, the focal attention in forming the system of bank supervision is normally paid to the management of the risk of bank credit as to the biggest focus of disorders of bank activities. However the modern conditions of the activity of financial sector members determine the growing attention of banks for the security of effectiveness of inner processes. The more complex procedures of bank activity and more intensive internal processes create preconditions to higher quantity of mis-takes in internal bank systems. Therefore there is a threat of frustration of bank activity which can become the rea-son of crisis of bank activity. These reasons force bank managers to pay more attention to the management of operational risk, the efficiency of which has the big influ-ence on bank competitiveness and its success in the mar-ket.

• Details
• Contents