Abstract
<p><em>Due to the inadequate conduct of their business, financial institutions have recently sustained severe losses, as a result of which the management of conduct risks has become increasingly prominent in regulation. This paper describes the position of conduct risk within the framework of risk management, and uses Hungarian and international examples involving major losses to illustrate the need for the adequate management of conduct risks. This is followed by a description of how to manage the type of risk in question using the qualitative and quantitative tools of operational risk management. A quantitative analysis is then carried out to illustrate the effects on capital requirement achieved by taking into account conduct risks in various components of the internal models. </em><em></em></p>
Highlights
Original PaperJournal of Economics and Public Finance ISSN 2377-1038 (Print) ISSN 2377-1046 (Online)
The financial crisis has highlighted the fact that the greatest losses incurred by institutions tend to be associated with credit risk, the second most significant type of risk is operational risk, which, deserves to be considered as a central element in the current changing regulatory environment
Summary This article explained the position of conduct risks in commercial banking risk management, and reminded the interested reader that the EBA has yet to develop a precise definition for conduct risks within the scope of operational risks, as a result of which specific guidelines for the interpretation of the concept are only provided by the EBA recommendation on the supervisory review process
Summary
Journal of Economics and Public Finance ISSN 2377-1038 (Print) ISSN 2377-1046 (Online).
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