Operational Risk Management in Banks

By

ACKNOWLEDGEMENT

My thanks go out to all who have helped me complete this study and with whom this project may have not been possible. In particular, my gratitude goes out to friends, facilitator and family for extensive and helpful comments on early drafts. I am also deeply indebted to the authors who have shared my interest and preceded me. Their works provided me with a host of information to learn from and build upon, also served as examples to emulate.

DECLARATION

I [type your full first names and surname here], declare that the contents of this dissertation/thesis represent my own unaided work, and that the dissertation/thesis has not previously been submitted for the academic examination towards any qualification. Furthermore, it represents my own opinions and not necessarily those of the University.

Signed __________________ Date _________________

TABLE OF CONTENTS

ACKNOWLEDGEMENTii

DECLARATIONiii

INTRODUCTION1

Background of the Study1

Aim and Objectives2

Research Question2

Significance of the Study2

LITERATURE REVIEW4

Introduction4

Banking System Risk and Regulation4

Operational Risk Management in Banks5

RESEARCH DESIGN / METHODOLOGY8

Introduction8

Research Method8

Qualitative Research Approach8

RESULTS AND ANALYSIS10

SUMMARY AND CONCLUSIONS11

REFERENCES12

INTRODUCTION

Background of the Study

The financial system and its stability are essential for the economic growth of countries and for the well being of citizens. To ensure growth, prosperity, and trust, and to structure interactions in the financial system, governments create regulations. Regulations define how individuals and organizations behave within the system. Despite the guidance provided to the banking industry through regulation and strong regulatory regimes, markets still experience instances of extreme loss and failure.

Regulations, intended to provide a benefit, also carry a cost- in some cases excessive. Mullen and Budeva (2009), for example, estimated that regulatory compliance would cost U.S. businesses $80 billion over a 5- year period from 2007 onward. DiRenzo and Hillairet (2007) determined that total regulatory cost in 2004 to citizens, government, and industry reached a staggering $1.1 trillion. Given the cost of regulatory compliance, governments must craft regulations that provide the ability to address real problems. Equally important, however, is the need for regulations that can be effectively and efficiently implemented. Regulatory compliance is an essential element of regulatory success.

The problem of regulatory compliance can be complicated because of a lack of consistent implementation. No single theory can guide governments and regulated industries (Nee, 2005). Instead, organizations that need to implement regulations find a profusion of coexisting theories focusing on specific implementation issues rather than larger concepts. Factors such as administrative desires (Janakiriman, 2008), inter-organizational relationships (Netter & Poulsen, 2003), the influence of street-level bureaucrats (Mullen and Budeva, 2009), task complexity (Netter & Poulsen, 2003), implementation costs (Nee, 2005), and access to technical knowledge (Mullen and Budeva, 2009) have been identified as potentially impacting policy implementation success.

Aim and Objectives

The aim of this research study is to explore the management of operational risk in banks. In order to meet this aim, this research study has met the below mentioned objectives.

To explore the risks that arise due to operations

To assess ways in which operational risk can be managed

To assess the operational risks that prevail in a bank and the ways it manages ...