Template-Type: ReDIF-Article 1.0

Author-Name: Norbert Kozma
Author-Workplace-Name: Magyar Nemzeti Bank
Author-Email: kozman@mnb.hu

Title: Principles of Proportionality in Credit Institutions’ Operational Risk Management

Abstract: Operational risk is a natural risk inherent in credit institutions’ activity, and the
scope of this risk is becoming increasingly broad. In parallel with banking practices,
supervisory authorities have continuously attempted to identify potential risks
and ensure that the capital requirement provides sufficient cover for them. In
the practical implementation of this, the regulation regards proportionality as
a fundamental principle; however, the interpretation and implementation of
this into supervisory practice encounters difficulties. Relying on a wide-ranging
analysis of operational risk management applied by small, medium-sized and large
banks, this paper provides assistance in the proper application of the principle of
proportionality, although it cannot undertake to resolve the dilemmas related to
the principles of proportionality. In addition, it contributes to the improvement of
the operational risk framework and thereby to reducing the range of continuously
growing natural risks, based on the analysis of Hungarian credit institutions’ data,
the analysis of the EU regulatory and Hungarian supervisory requirements and an
assessment of credit institutions’ practices.

Classification-JEL: G21, G32, L25
Keywords: banking regulation, operational risk, principles of proportionality, supervision
Pages: 78-101
Volume: 19
Issue: 3
Year: 2020
File-URL: https://en-hitelintezetiszemle.mnb.hu/letoltes/fer-19-3-st3-kozma.pdf
File-Format: Application/pdf
Handle: RePEc:mnb:finrev:v:19:y:2020:i:3:p:78-101