Systematic Approach to Operational Risk Management in Central Banks (Regulators): Prerequisites, Current Issues, and Development Prospects

Valery Goreglyad
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Valery Goreglyad: Bank of Russia

Russian Journal of Money and Finance, 2019, vol. 78, issue 4, 99-118

Abstract: As regards financial risk management, its issues have already been worked through rather extensively both in theory and in practice. However, this is not the case when it comes to operational risks. The reason for this does not lie in the two types of risk having differing levels of significance (both types can have disastrous consequences for an organisation); it is rather due to their differing nature and, in the case of operational risks, more complex cause and effect relationships between the sources and consequences of risks. These circumstances make it extremely challenging not only to assess, but also to understand operational risks. Moreover, whereas a lot has already been done in regards to the operational risks faced by commercial institutions (which is largely thanks to the efforts of supervisory bodies who consider this a matter of financial stability), it is only in the last two decades that supervisory bodies themselves (central banks and other regulators, hereinafter referred to as regulators) have been seen to implement operational risk management systems. In this paper, we analyse the prerequisites for the formation of a systematic approach to operational risk management in international practices and conduct comparative analysis of its reasonableness for using by regulators and commercial institutions. Our analysis confirms the relevance of this new trend and demonstrates that, given their specific nature, when regulators implement operational risk management systems in their activities, risk culture and top-down support issues come to the fore.

Keywords: central banks; risk management; operational risk (search for similar items in EconPapers)
JEL-codes: E58 G30 (search for similar items in EconPapers)
Date: 2019
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Persistent link: https://EconPapers.repec.org/RePEc:bkr:journl:v:78:y:2019:i:4:p:99-118

DOI: 10.31477/rjmf.201904.99

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