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COMPLETED - Operational Risk as a Hidden Threat of the Bank


Operational Risk as a Hidden Threat of the Bank: Solutions for Emerging Markets


The project was initiated by the group of participants of the VII International conference «International competition in banking: theory and practice» held at the Ukrainian Academy of Banking of the National Bank of Ukraine (May 24-25th, 2012, Sumy, Ukraine).


The specific of banking, in particular dependence on human resources and technologies, caused that among different types of bank risks, operational ones are in the spotlight nowadays. Its appearance may not stand on external impulses, such as economic or political situation, financial crisis or market changes. The accurate identification of operational risk indicators directly influences its quantitative valuation. The development and implementation of the models that let assess the level of operational risk in financial institution with the aim to realize adequate risk-management instruments on time is still a problem in banks in most countries nowadays.


The project base is the investigation of operational risk origin in terms of its individual components on the base of present researches systematization formed by leading scientists. The project aims to uncover the operational risk influence on other financial and non-financial bank risks, e.g. credit, liquidity, strategic, legal, market, currency or interest rate risk. The key goal of the project is to characterize operational risk management system including management mechanism from the point of risk’s components with the further systematization of operational risk assessment methods called-up by Basel committee on banking supervision, national regulators in emerging markets, and approaches additionally used in leading world banks and are based on modern scientific workouts. Using the gained results we can offer the model oriented on effective evaluation and prediction of individual bank’s operational risk in order to minimize it. Investigation the role of the board of directors, committees, chief risk officer (chief risk management officer) and a comparative analysis of their functions in the operational risk’s sphere in emerging markets are also important objectives of the project.


The second section includes the definition of factors and events that cause operational risk appearance in bank, the analysis of modern theoretical workouts concerning this problem in emerging markets, and the brief outlook on development of Basel recommendations on the base of Basel II and Basel III study.

The third section is devoted to operational risk management system in individual bank. The description of main stages that constitute the operational risk management mechanism is necessary stage in the process of interrelation detection between planning, evaluation, control and regulation phases. The important task is to make comparative analysis of functions of different subjects of corporate governance (including the board of directors, committees, chief risk officer) and management in emerging markets and formation on its base the conclusions about concept and model of corporate governance in the countries on the risk management sphere.

The fourth section provides for systematization of existing methodological approaches to operational risk evaluation. On the base of the results we define the advantages and disadvantages of them and compare the Basel III approach to those established by national regulators in banking sphere in both examining countries and additionally established by individual banks. On the base of the analysis we possibly form the proper approach to operational risk evaluation that let level revealed disadvantages and could be used in emerging markets. For this aim by the results of the first section the input indicators will be defined by every risk component that after held econometrical transformation will afford an opportunity to form an integrated index for risk evaluation. The practical significance of obtained results will consists in possibility of usage of worked out in the paper theoretical and practical results and conclusions on the level of individual bank – while improving operational risk assessment during current operations; on the level of regulator – while improving operational risk evaluation in banking supervisory activities.

The last section contains the summary and conclusions.


Results of our joint research suggest presenting on the scientific conferences in France (Paris) in April 2013 and Ukraine (Academy of Banking, Sumy) in May 2013.

Deadline stages:

introduction – October 2012,

theoretical investigation – end of November 2012,

model building, testing hypothesis and main findings – December 2012-February 2013,

paper key points and policy implications – March 2013.


Ronald H. Mynhardt (South Africa); Olya Afanasieva (Ukraine); Dmitriy Ryabichenko (Ukraine); Hassan Obeid (France); scientists from other countries are offered to participate.


Olya Afanasieva PhD, Ukrainian Academy of Banking of the National Bank of Ukraine (Sumy, Ukraine) (e-mail:

Dmitriy Ryabichenko Ukrainian Academy of Banking of the National Bank of Ukraine (Sumy, Ukraine) (e-mail:

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