Operational risk management in a bank

INTRODUCTION 5
CHAPTER I 10
OPERATIONAL RISK IN A BANK 10
1.1. THE CONCEPT OF BUSINESS AND FINANCIAL RISK 10
1.2. DISTINCTION OF OPERATIONAL RISK IN BANKS 17
1.3. EXAMPLES OF SPECTACULAR OPERATIONAL RISK GENERATED LOSS 26

CHAPTER II 31
OPERATIONAL RISK AND SYSTEMIC RISK IN MODERN FINANCIAL MARKETS 31
2.1. STRUCTURE OF FINANCIAL MARKETS 31
2.2. RISK FACTORS IN THE FINANCIAL MARKET 33
2.3. SYSTEMIC RISK 35
2.4. OPERATIONAL RISK IN FINANCIAL MARKETS 38
2.5. RISK APPETITE 40
2.6. OPERATIONAL RISK AND THE GLOBAL CRISIS IN THE BANKING SECTOR 45

CHAPTER III 48
REGULATIONS CONCERNING THE MANAGEMENT OF OPERATIONAL RISK IN A BANK 48
3.1. SECURITY OF FINANCIAL SYSTEM 48
3.2. WORLD REGULATIONS IN THE SCOPE OF MANAGING OPERATIONAL RISK 49
3.3. EUROPEAN REGULATIONS 66
3.4. NATIONAL REGULATIONS 70
3.5. INTERNAL BANK REGULATIONS 74
3.6. REGULATIVE ROLE OF CORPORATE GOVERNANCE 76

CHAPTER IV 79
METHODS AND MODELS OF OPERATIONAL RISK MEASUREMENT IN A BANK 79
4.1. CAPITAL ADEQUACY – THE AIM OF OPERATIONAL RISK MEASUREMENT IN A BANK 79
4.2. FAILURE MODE EFFECTS ANALYSIS (FMEA) 81
4.3. RISK MATRIX 83
4.4. METHODS USED TO ALLOCATE THE CAPITAL TO COVER OPERATIONAL RISK 84
4.5. BASIC INDICATOR APPROACH (BIA) 86
4.6. THE STANDARDISED APPROACH (TSA) 93
4.7. ALTERNATIVE STANDARDIZED APPROACH (ASA) 99
4.8. THE SPECIFICITY OF ADVANCED MEASUREMENT APPROACHES (AMA) 99
4.9. ADVANCED OPERATIONAL RISK MEASUREMENT APPROACHES (AMA) TO CAPITAL. REQUIREMENT OF THE BANK 109
4.10. COMPARISON OF METHODS DETERMINING THE CAPITAL REQUIREMENT FOR OPERATIONAL RISK 119

CHAPTER V 121
OPERATIONAL RISK MANAGEMENT SYSTEM IN A BANKING ENTERPRISE 121
5.1. STRATEGY AND STRUCTURE OF OPERATIONAL RISK MANAGEMENT 121
5.2. IDENTIFICATION OF OPERATIONAL RISK IN A BANK 136
5.3 ASSESSMENT AND MEASUREMENT OF OPERATIONAL RISK IN A BANK IN ORDER TO DETERMINE CAPITAL REQUIREMENT 141
5.4. COUNTERACTING RISK 151
5.5. OPERATIONAL RISK CONTROL IN A BANK 156
5.6. MONITORING AND REPORTING OPERATIONAL RISK IN A BANK 162

CHAPTER VI 169
AN ATTEMPT TO APPLY AMA MODEL TO CALCULATE CAPITAL ADEQUACY FOR OPERATIONAL RISK IN A BANK 169
6.1. FOUNDATIONS OF CALCULATING CAPITAL REQUIREMENT FOR OPERATIONAL RISK USING THE AMA APPROACHES 169
6.2. CALCULATING THE VALUE OF CAPITAL REQUIREMENT FOR OPERATIONAL RISK USING THE ADVANCED APPROACH AMA AND LDA MODEL 170
6.3. ASSESSING DISTRIBUTION OF LOSS ACUTENESS (SIZE) IN A SELECTED RISK CLASS. 174
6.4. ESTIMATING LOSS NUMBER (FREQUENCY) DISTRIBUTION 179
6.5. CREATING DISTRIBUTION LINE OF JOINT DISTRIBUTION IN A SELECTED RISK CLASS..180
6.6. CALCULATING TOTAL CAPITAL FOR RISK 183
6.7. CALCULATING CAPITAL VALUE FOR OPERATIONAL RISK FOR THE PURPOSE OF CAPITAL ADEQUACY OF A BANK 184
6.8. ALLOCATING CAPITAL REQUIREMENT CALCULATED FOR BANK INTERNAL SUBJECTS BY MEANS OF THE ADVANCED METHOD 186

CHAPTER VII 187
OPERATIONAL RISK CAPITAL IN BANKS IN POLAND IN THE YEARS 2010-2012 187
7.1. THE TOTAL CAPITAL REQUIREMENT IN THE EQUITY FUNDS OF THE STUDIED BANKS 187
7.2. OPERATIONAL RISK CAPITAL REQUIREMENT IN THE STUDIED BANKS 190
7.3. ESTIMATION OF THE CAPITAL ADEQUACY FOR OPERATIONAL RISK ON THE EXAMPLE OF TWO BIGGEST BANKS IN POLAND 193

CONCLUSION 202
BIBLIOGRAPHY 207
INDEX OF DIAGRAMS 221
INDEX OF FIGURES 222
INDEX OF TABLES 223
APPENDIX 1. THE SHARE OF THE TOTAL CAPITAL REQUIREMENT IN THE EQUITY OF BANKS IN THE YEARS 2010-2012 225
APPENDIX 2. THE SHARE OF OPERATIONAL RISK REQUIREMENT IN THE TOTAL CAPITAL REQUIREMENT FOR THE STUDIED BANKS IN THE YEARS 2010-2012 226
APPENDIX 3. OPERATIONAL RISK CAPITAL REQUIREMENT IN THE EQUITY IN SELECTED BANKS IN THE YEARS 2010-2012 227
ZHRNUTIE 228