{"title":"Extreme value theory for operational risk in insurance: a case study","authors":"M. Vyskočil, Jiří Koudelka","doi":"10.21314/jop.2021.011","DOIUrl":"https://doi.org/10.21314/jop.2021.011","url":null,"abstract":"","PeriodicalId":54030,"journal":{"name":"Journal of Operational Risk","volume":"497 1","pages":""},"PeriodicalIF":0.5,"publicationDate":"2021-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"67707057","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Enterprise risk management and firm performance: evidence from Malaysian nonfinancial firms","authors":"A. Shahrin, A. Ibrahim","doi":"10.21314/jop.2021.009","DOIUrl":"https://doi.org/10.21314/jop.2021.009","url":null,"abstract":"","PeriodicalId":54030,"journal":{"name":"Journal of Operational Risk","volume":"1 1","pages":""},"PeriodicalIF":0.5,"publicationDate":"2021-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"67707043","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
F. Gonidakis, Andreas G. Koutoupis, Panagiotis Kyriakogkonas, Grigorios Lazos
{"title":"Risk disclosures in annual reports: the role of nonfinancial companies listed on the Athens stock exchange","authors":"F. Gonidakis, Andreas G. Koutoupis, Panagiotis Kyriakogkonas, Grigorios Lazos","doi":"10.21314/jop.2021.006","DOIUrl":"https://doi.org/10.21314/jop.2021.006","url":null,"abstract":"","PeriodicalId":54030,"journal":{"name":"Journal of Operational Risk","volume":"1 1","pages":""},"PeriodicalIF":0.5,"publicationDate":"2021-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"67707030","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"The role of management accounting practices in operational risk management: the case of Palestinian commercial banks","authors":"Hind Muhtaseb, Derar Eleyan","doi":"10.21314/jop.2021.012","DOIUrl":"https://doi.org/10.21314/jop.2021.012","url":null,"abstract":"","PeriodicalId":54030,"journal":{"name":"Journal of Operational Risk","volume":"1 1","pages":""},"PeriodicalIF":0.5,"publicationDate":"2021-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"67707101","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper investigates the impact of risk governance and market competition on banks’ operational risk disclosure (ORD) quality (total and voluntary) in the Association of Southeast Asian Nations (ASEAN-5) banking sector. Using 285 firm-year observations encompassing the period 2010–14 for risk governance indexes, we investigate the moderating effects of market competition, relative to total risk governance practices, on banks’ ORD quality. The results of our panel data analysis show that there is a substitution effect of competition, which could reduce the adverse consequences of weak risk governance practices. However, governance factors – such as the chief risk officer’s (CRO’s) role and independence, and the risk communication system – decrease voluntary ORD quality. These findings have implications for the role of the financial regulator in using market competition as an effective mechanism to replace banks’ weak risk governance, thus encouraging banks to improve their ORD quality. This study contributes to existing knowledge by providing new empirical insights into ongoing debates about the complementary or substitutionary role of competition policies and corporate governance practices.
本文研究了风险治理和市场竞争对东南亚国家联盟(ASEAN-5)银行业操作风险披露(ORD)质量(total and voluntary)的影响。利用2010年至2014年期间285家公司的风险治理指数观察结果，我们研究了相对于总体风险治理实践，市场竞争对银行ORD质量的调节作用。我们的面板数据分析结果表明，竞争存在替代效应，这可以减少弱风险治理实践的不良后果。然而，治理因素——例如首席风险官(CRO)的角色和独立性，以及风险沟通系统——降低了自愿ORD的质量。这些发现对金融监管机构在利用市场竞争作为有效机制来取代银行薄弱的风险治理方面的作用具有启示意义，从而鼓励银行提高其ORD质量。本研究通过为竞争政策和公司治理实践的互补或替代作用的持续争论提供新的实证见解，有助于现有知识。
{"title":"Risk Governance, Market Competition and Operational Risk Disclosure Quality: A Study of the ASEAN-5 Banking Sector","authors":"Etikah Karyani, O. Kolade, Setio Anggoro Dewo","doi":"10.21314/jop.2021.004","DOIUrl":"https://doi.org/10.21314/jop.2021.004","url":null,"abstract":"This paper investigates the impact of risk governance and market competition on banks’ operational risk disclosure (ORD) quality (total and voluntary) in the Association of Southeast Asian Nations (ASEAN-5) banking sector. Using 285 firm-year observations encompassing the period 2010–14 for risk governance indexes, we investigate the moderating effects of market competition, relative to total risk governance practices, on banks’ ORD quality. The results of our panel data analysis show that there is a substitution effect of competition, which could reduce the adverse consequences of weak risk governance practices. However, governance factors – such as the chief risk officer’s (CRO’s) role and independence, and the risk communication system – decrease voluntary ORD quality. These findings have implications for the role of the financial regulator in using market competition as an effective mechanism to replace banks’ weak risk governance, thus encouraging banks to improve their ORD quality. This study contributes to existing knowledge by providing new empirical insights into ongoing debates about the complementary or substitutionary role of competition policies and corporate governance practices.","PeriodicalId":54030,"journal":{"name":"Journal of Operational Risk","volume":"29 1","pages":""},"PeriodicalIF":0.5,"publicationDate":"2020-11-03","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"87804649","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We formulate a novel Markov regime-switching factor model to describe the cyclical nature of asset returns in modern financial markets. Maintaining a factor model structure allows us to easily derive the asset expected returns and their corresponding covariance matrix. By design, these two parameters are calibrated to better describe the properties of the different market regimes. In turn, these regime-dependent parameters serve as the inputs during mean–variance optimization, thereby constructing portfolios adapted to the current market environment. Through this formulation, the proposed model allows for the construction of large, realistic portfolios at no additional computational cost during optimization. Moreover, the viability of this model can be significantly improved by periodically rebalancing the portfolio, ensuring proper alignment between the estimated parameters and the transient market regimes. An out-of-sample computational experiment over a long investment horizon shows that the proposed regime-dependent portfolios are better aligned with the market environment, yielding a higher ex post rate of return and lower volatility than competing portfolios.
{"title":"A Regime-Switching Factor Model for Mean–Variance Optimization","authors":"Giorgio Costa, R. Kwon","doi":"10.21314/jor.2020.432","DOIUrl":"https://doi.org/10.21314/jor.2020.432","url":null,"abstract":"We formulate a novel Markov regime-switching factor model to describe the cyclical nature of asset returns in modern financial markets. Maintaining a factor model structure allows us to easily derive the asset expected returns and their corresponding covariance matrix. By design, these two parameters are calibrated to better describe the properties of the different market regimes. In turn, these regime-dependent parameters serve as the inputs during mean–variance optimization, thereby constructing portfolios adapted to the current market environment. Through this formulation, the proposed model allows for the construction of large, realistic portfolios at no additional computational cost during optimization. Moreover, the viability of this model can be significantly improved by periodically rebalancing the portfolio, ensuring proper alignment between the estimated parameters and the transient market regimes. An out-of-sample computational experiment over a long investment horizon shows that the proposed regime-dependent portfolios are better aligned with the market environment, yielding a higher ex post rate of return and lower volatility than competing portfolios.","PeriodicalId":54030,"journal":{"name":"Journal of Operational Risk","volume":"43 1","pages":""},"PeriodicalIF":0.5,"publicationDate":"2020-04-28","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"88056148","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Bangladesh Bank (BB), the central bank of Bangladesh, experienced a highly organized cyber heist in February 2016 that seriously impaired the legitimacy of the cyber security systems of the country’s overall banking sector. This study examines the spillover effect of that cyber heist on the cyber risk disclosures of the banking sector in Bangladesh. Building on institutional theory, we propose that in emerging markets, after a notable cyber heist experienced by the country’s central bank, the banking sector of the country tends to increase cyber risk disclosures as an institutional strategy to regain legitimacy. Analyzing the disclosures in the annual reports of 38 commercial banks from 2014 to 2018, we find that banks’ cyber risk disclosures significantly increased after the BB cyber heist.We also find that the political embeddedness of the banks and their adherence to Islamic Shariah negatively influence a bank’s tendency to use cyber risk disclosures as a legitimacy-regaining strategy after the heist. Our institutional perspective offers new insights into why the banks in an emerging country engage more in cyber risk disclosures after such an atrocious cyber attack.
{"title":"The Spillover Effect of the Bangladesh Bank Cyber Heist on Banks’ Cyber Risk Disclosures in Bangladesh","authors":"M. Mazumder, A. Sobhan","doi":"10.21314/JOP.2020.249","DOIUrl":"https://doi.org/10.21314/JOP.2020.249","url":null,"abstract":"Bangladesh Bank (BB), the central bank of Bangladesh, experienced a highly organized cyber heist in February 2016 that seriously impaired the legitimacy of the cyber security systems of the country’s overall banking sector. This study examines the spillover effect of that cyber heist on the cyber risk disclosures of the banking sector in Bangladesh. Building on institutional theory, we propose that in emerging markets, after a notable cyber heist experienced by the country’s central bank, the banking sector of the country tends to increase cyber risk disclosures as an institutional strategy to regain legitimacy. Analyzing the disclosures in the annual reports of 38 commercial banks from 2014 to 2018, we find that banks’ cyber risk disclosures significantly increased after the BB cyber heist.We also find that the political embeddedness of the banks and their adherence to Islamic Shariah negatively influence a bank’s tendency to use cyber risk disclosures as a legitimacy-regaining strategy after the heist. Our institutional perspective offers new insights into why the banks in an emerging country engage more in cyber risk disclosures after such an atrocious cyber attack.","PeriodicalId":54030,"journal":{"name":"Journal of Operational Risk","volume":"64 1","pages":""},"PeriodicalIF":0.5,"publicationDate":"2020-04-04","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"74098639","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
For banks, operational risk losses are likely to have a significant impact not only on their financial condition, but also on their reputation. This makes operational risk management (ORM) particularly important. In relation to ORM, the Basel Committee on Banking Supervision promotes a banking supervision policy based on the idea of “enforced self-regulation”. Thus, the central banks of different countries regulate ORM according to the specificities of their national banking industry. This paper tests the hypothesis that such regulatory openness results in legal texts that are highly influenced by the culture of the country in which each central bank issuing guidelines on ORM is located. The author analyzes a corpus of approximately 50 000 words that feature in ORM guidelines published in English by the central banks of China, Hong Kong, India, Indonesia, Japan, Singapore and South Korea. By applying the Kendall coefficient, the following significant correlations have been found: (a) the higher the masculinity dimension, the less clear the text; and (b) the higher the masculinity dimension, the less prescriptive the text. Moreover, our content analysis reveals that each operational risk-related item has a different weight in the guidelines of different countries. The research results should be useful to regulators looking to fine-tune their decisions in different cultural environments.
对于银行来说，操作风险损失不仅可能对其财务状况产生重大影响，还可能对其声誉产生重大影响。这使得操作风险管理(ORM)尤为重要。在ORM方面，巴塞尔银行监管委员会(Basel Committee on Banking Supervision)推动了一项基于“强制自我监管”理念的银行监管政策。因此，各国央行根据本国银行业的具体情况对ORM进行监管。本文检验了这样一个假设，即这种监管开放导致的法律文本受到每个发布ORM指导方针的央行所在国家文化的高度影响。作者分析了中国、香港、印度、印度尼西亚、日本、新加坡和韩国央行以英语出版的ORM指南中大约5万字的语料库。运用肯德尔系数，发现以下显著相关性:(a)男性化维度越高，文本越不清晰;(b)男性化维度越高，文本的规定性越少。此外，我们的内容分析显示，每个操作风险相关项目在不同国家的指导方针中具有不同的权重。研究结果应该有助于监管机构在不同的文化环境中微调决策。
{"title":"The Impact of Culture Upon Operational Risk Management Guidelines in the Banking Sector of Selected Asian Countries","authors":"M. Mocanu","doi":"10.21314/JOP.2020.248","DOIUrl":"https://doi.org/10.21314/JOP.2020.248","url":null,"abstract":"For banks, operational risk losses are likely to have a significant impact not only on their financial condition, but also on their reputation. This makes operational risk management (ORM) particularly important. In relation to ORM, the Basel Committee on Banking Supervision promotes a banking supervision policy based on the idea of “enforced self-regulation”. Thus, the central banks of different countries regulate ORM according to the specificities of their national banking industry. This paper tests the hypothesis that such regulatory openness results in legal texts that are highly influenced by the culture of the country in which each central bank issuing guidelines on ORM is located. The author analyzes a corpus of approximately 50 000 words that feature in ORM guidelines published in English by the central banks of China, Hong Kong, India, Indonesia, Japan, Singapore and South Korea. By applying the Kendall coefficient, the following significant correlations have been found: (a) the higher the masculinity dimension, the less clear the text; and (b) the higher the masculinity dimension, the less prescriptive the text. Moreover, our content analysis reveals that each operational risk-related item has a different weight in the guidelines of different countries. The research results should be useful to regulators looking to fine-tune their decisions in different cultural environments.","PeriodicalId":54030,"journal":{"name":"Journal of Operational Risk","volume":"87 1","pages":""},"PeriodicalIF":0.5,"publicationDate":"2020-02-18","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"82386433","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
In this study, we investigate the operational risk reporting practices of Islamic banking institutions (IBIs) and conventional banks (CBs) in Saudi Arabia. Moreover, we explore the joint effect of banking characteristics, corporate governance and credit rating on the informational content of operational risk disclosure (OpRiskDISC). We use content analysis to collect OpRiskDISC data from annual reports during the period 2008–15. The results for each bank type show that the enhanced OpRiskDISC in IBIs is negatively associated with the number of bank branches, the financial stability of the bank, board meeting frequency, the proportion of independent members and credit rating. The results for CBs demonstrate that a bank’s size and financial stability are positively associated with OpRiskDISC. Conversely, the OpRiskDISC level is negatively affected by board meeting frequency and the number of bank branches. For the overall sample, our empirical results show that bank size, compliance with Sharia requirements and board size have a positive, significant effect on OpRiskDISC, while the number of bank branches and the proportion of independent members on the board have a negative, significant relationship with the disclosure level.
{"title":"Difference between the Determinants of Operational Risk Reporting in Islamic and Conventional Banks: Evidence from Saudi Arabia","authors":"Wael Hemrit","doi":"10.21314/JOP.2019.235","DOIUrl":"https://doi.org/10.21314/JOP.2019.235","url":null,"abstract":"In this study, we investigate the operational risk reporting practices of Islamic banking institutions (IBIs) and conventional banks (CBs) in Saudi Arabia. Moreover, we explore the joint effect of banking characteristics, corporate governance and credit rating on the informational content of operational risk disclosure (OpRiskDISC). We use content analysis to collect OpRiskDISC data from annual reports during the period 2008–15. The results for each bank type show that the enhanced OpRiskDISC in IBIs is negatively associated with the number of bank branches, the financial stability of the bank, board meeting frequency, the proportion of independent members and credit rating. The results for CBs demonstrate that a bank’s size and financial stability are positively associated with OpRiskDISC. Conversely, the OpRiskDISC level is negatively affected by board meeting frequency and the number of bank branches. For the overall sample, our empirical results show that bank size, compliance with Sharia requirements and board size have a positive, significant effect on OpRiskDISC, while the number of bank branches and the proportion of independent members on the board have a negative, significant relationship with the disclosure level.","PeriodicalId":54030,"journal":{"name":"Journal of Operational Risk","volume":"18 1","pages":""},"PeriodicalIF":0.5,"publicationDate":"2020-01-27","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"86614768","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Basel's new standardized approach (SA) for operational risk capital may allow for regulatory arbitrage through the use of insurance. Under the SA, banks will have incentive to insure recurring losses, which can meaningfully reduce capital requirements even as it does not meaningfully decrease tail operational loss exposure. Several alternatives to deal with this regulatory arbitrage strategy are discussed.
{"title":"Regulatory Arbitrage in the Use of Insurance in the New Standardized Approach for Operational Risk Capital","authors":"Marco Migueis","doi":"10.2139/ssrn.3485866","DOIUrl":"https://doi.org/10.2139/ssrn.3485866","url":null,"abstract":"Basel's new standardized approach (SA) for operational risk capital may allow for regulatory arbitrage through the use of insurance. Under the SA, banks will have incentive to insure recurring losses, which can meaningfully reduce capital requirements even as it does not meaningfully decrease tail operational loss exposure. Several alternatives to deal with this regulatory arbitrage strategy are discussed.","PeriodicalId":54030,"journal":{"name":"Journal of Operational Risk","volume":"337 1","pages":""},"PeriodicalIF":0.5,"publicationDate":"2019-11-12","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"77315509","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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