Operational risk management in banking activity

Abstract

A multitude of factors can create operational risks, and the possible financial losses that can be resulted in are important. The appearance of various prudential regulations for appropriate operational risk management, in a short period of time, contributed to the inclusion of this risk as one of the most significant risks in the banking sector. This paper presents the operational risk elements, the steps in the process of risk management, and the causes of operational risks. In a case study of a Romanian bank, prudential regulations in the field of operational risks and methods for calculating the minimum capital needed for operational risks are presented and highlighted. Crisis simulations are viewed as an integrated part of operational risk management. An overview of the evolution of the minimum operational risk capital requirement calculated in the Romanian banking system for the period 2008-2018 was carried out in parallel with the evolution of the operational risk's minimum capital requirement calculated in the European banking sector. This study concludes that the basic indicator method is primarily used for the estimation of the minimum capital requirement for operational risks in 2018. However, a steady increase in the percentage of the standardized approach used and the percentage of the use of the advanced measurement approach was observed during the period studied.