Bank risk management – The main problem of the monetary economy

Author:Alexandru Olteanu

Alexandru Olteanu. Professor, Ph.D., Nicolae Titulescu” University, Bucharest; (e-mail: aolteanu

Madalina Antoaneta Radoi (Olteanu). Lecturer, Ph.D., Nicolae Titulescu” University, Bucharest

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Risk may have an impact on financial and banking institutions, both an induced impact caused by the effects on the client, staff, shareholders, partners, and even on the central bank authority, and an impact taking the form of some losses directly incurred. Risk represents the possibility of producing an event with adverse consequences for the banking institution.

The exposure to risk is the present value of all losses and additional expenses/costs that are stood by the bank. In order to reduce the effects of the risks, within this paper, there are analyzed some aspects of their effective management, so that the boards of the banks have methods and techniques for analyzing and minimizing them.

Risk Management

The banking sector clearly evolves towards a higher level of techniques and approaches to risk management, in comparison to those used in the past. However, there is plenty of room for improvement. The techniques used by smaller banking institutions are less complex and efficient, in some cases, being necessary the need for improvement in order to make them able to reach the level of top banks. In their turn, these banks must be in a constant search for solutions and ways of managing the issues arising in the field of bank risks.

Today there is an increased concern in financial innovation within the banking activity, especially in terms of extra-balance instruments, which could affect the entire banking system.

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In a bank, the new banking environment and the increased market solvency have required an integrated approach to management techniques, assets and liabilities and bank risk management (see Figure 1).


Fig. 1. Exposure to the risk of a bank.

A Operational Risk

Operational risk is essential for the effective management and control of all risk categories. It is important for the definition of this kind of risk to take into account the entire variety of operational risks and to capture significant cases resulting in major operational losses.

As a result, there have been identified operational risk events that have the potential to cause serious losses, including the following:

The event which
generates risk
Internal Fraud Wrong International Reports, staff theft, illegal transactions in the employee's own
External Fraud Theft, forgery and damage caused by hackers
Human resources risk Claims of the staff, violation of employees’ health and safety rules, claims related to
discrimination attitudes.
Risk of products and
Breaches of trust in the bank, the inappropriate use of confidential information,
illegal transactions in the bank account, money laundering, the sale of unauthorized
Risk of assets/property
and personnel
Terrorism, vandalism, earthquakes, fires, floods
Technological risk Hardware and software errors, telecommunications problems, lack of supplies
Management risk Errors in data entry, errors in the management of the collateral, incomplete legal
documentation, unauthorized access to customer accounts, the negative performance
of the counterparty


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For practical use and theoretical clarity it is important to distinguish the operational risk from other types of risks.

It is important to understand risk as being the cause of negative deviation from an expected or desired end, or if we see risk as being the negative effect. Sometimes it is used a combination of cause and effect to identify and demarcate the risk.

Therefore, it is considered that the identification and demarcation of operational risk as opposed to credit risk and market risk, is essential.

The Risk identification matrix is reproduced in Fig. 2. 2.

Direct Manifestation
due to the value
of the counterparty
Caused by the change
of market value
Optional loss Indicated
Increase of
Decrease of
about the counterparty
A / B / a B B B B B
about the market
Other causes A
Inappropriate or wrong
persons, systems, external

Figure 2. Risk Identification Matrix (RIM)

The above Cause / effect matrix, known as “Risk identification matrix” - RIM is...

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