Page 8 - Azerbaijan State University of Economics

THE JOURNAL OF ECONOMIC SCIENCES: THEORY AND PRACTICE, V.81, # 2, 2024, pp. 4-29

This definition includes legal risks but excludes strategic risks, reputational risks and
regulatory risks ((BIS), 2006). Maintaining capital to face losses arising from
operational risks is an essential part and not an option.

Types of Operational Risks
According to the Basel Committee, operational risks are divided into the following
types: (salah, 2007).

Implementation and Management of Operations
These are losses resulting from the wrong processing of operations, customer
accounts, the bank's daily operations, weaknesses in control and internal audit
systems, and failure to carry out transactions (Chapelle, 2018).

Human Element
Losses caused by employees (intentionally or unintentionally), as well as acts that
aim to cheat or misuse property or circumvent the law, regulations or company policy
by officials or employees, as well as losses arising from the relationship with
customers, shareholders, regulators and any third party (Ron S. Kenett, 2010).

Automated Systems and Communications
Losses arising from the disruption of work or failure of systems due to infrastructure,
information technology, or non-availability of systems, and any malfunction or
malfunction of systems (Thirlwell, 2010).

Events Related to the External Environment
Losses arising from the work of a third party, including external fraud and any
damage to property and assets, and losses as a result of a change in laws that affects
the bank's ability to continue working (Girling, 2013).

OPERATIONAL RISK MANAGEMENT USING VALUE AT RISK
The Basel Committee recognized the need to cover operational risks and not only rely
on improving performance at the level of banks, but also to allocate part of the private
funds to cover them (HUSEYNLI, 2022), which is known as capital adequacy (Michel
Crouhy, 2013). In accordance with the second agreement, the Basel Committee has
developed three approaches to calculate the capital necessary to cover operational
risks, among which banks can choose: the basic indicator input, the standard input,
and the advanced measurement input ((BCBS), 2006).

The advanced measurement approach in calculating the capital requirement to meet
operational risks is based on advanced internal models in the bank (Mammadov, 2020),
by measuring the amount of exposure to these risks through the internal measurement
system used, and approved by the Banking Supervision Authority.

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