engleski

Operation risk management in banks

In their operations, banks face various types of risks that may negatively affect their business. Under the Basel Guidelines, banks are required to establish a sound risk management system, integrate it into all business activities, and ensure that the bank’s risk profile is at all times consistent with its risk appetite. Thus, this paper aims to underline the importance of establishing operational risk controls in banking. The paper addresses two research questions: Are operational risks an essential element of banking operations, and to what extent do they affect bank operations? To determine the importance of establishing and managing the risks faced by financial institutions, an analysis was conducted of 3, 644 financial institutions based in Europe. The analysis included only the financial institutions that recorded financial losses resulting from operational risk. As part of the analysis, the amounts of operational risk losses incurred in Croatia were identified and analyzed. The results of the analyses indicate that more extensive and more developed financial institutions allocate more resources for operational risk management than smaller institutions. Furthermore, they show the importance of allocating resources for measuring and monitoring operational risks and establishing an operational risk management system in banks. Financial institutions in developed countries use various risk management methods. Croatian financial institutions still do not sufficiently implement risk monitoring and control measures. This is confirmed by the fact that the database contains only 11 loss events pertaining to Croatia.

risk management ; operational risks ; financial institutions ; regulatory bodies

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