Francisco Flores

Social media and corporate dialogue: the response of global financial institutions

Purpose – The aim of this paper is to analyse the extent to which global financial institutions are using Web 2.0 technologies and social media initiatives to transform the way in which they perform their corporate disclosure, that is, if these entities are opening a real corporate dialogue.Design/methodology/approach – The web sites of 132 major global financial entities – in Europe (54 entities), the Asia‐Pacific region (55) and the Americas (23) – have been scored according to a Sophistication Index, considering various relevant Web 2.0 technologies and social media implementations. The analysis, by means of least squares and logistic regression models, is consistent across both techniques.Findings – Web 2.0 technologies and social media are not fully available in the corporate reporting arena. Nonetheless, a significant influence is detected. The size of each entity and the region in which it operates influence the scored utilisation of Web 2.0 and social media initiatives.Research limitation/implicat...

Operational risk information system: a challenge for the banking sector

Purpose – The purpose of this paper is to analyse the capacity of response of the banking sectors information systems (IS), in the light of the new requirements of Basel II (Basel Bank for International Settlements) on the measurement and control of operational risk (OR). Design/methodology/approach – By means of a structured case, developed with a Spanish savings bank of medium size, an analysis is made of the practices and structures that may need to be modified to prevent a loss of competitive position. Lastly specific improvements are proposed to facilitate the implementation of an operational risk information system (OR-IS). Findings – The paper concludes that there still exists a considerable distance between the current IS in use and an OR-IS compatible with the model proposed under Basel II, for that kind of entities, and indicates the opportunities and incentives that would arise in the attempt to reduce this distance. Practical implications – The IS of a bank should evolve towards the achievement of an OR-IS that enables the banks competitive position to be strengthened. In addition, the bank should aspire to obtain the external validation of its supervisory authority, which certifies the OR-IS implemented and classifies it as an advanced measurement approach (AMA) under Basel II. An analysis is made of the principal organisational weaknesses and necessities that should be rectified, with a view to applying the methodologies designated the AMA to OR in the Basel II agreement. Originality/value – Basel II has given increased visibility to the “OR” variable and there has been little explicit research into the process by which managers and organisations at medium sized entities decide to develop IS capable to measure and mitigate this new risk.

Solvency II and XBRL: new rules and technologies in insurance supervision

Purpose - The purpose of this paper is to analyse the way in which the insurance industry is facing the renewal of its regulatory framework with respect to the levels of solvency that insurance entities should maintain. This paper also addresses how technological initiatives in general, and the eXtensible Business Reporting Language (XBRL), in particular, are making a key contribution to the process of adaptation to the new regulation. Design/methodology/approach - The paper analyses the particular advantages that the application of the XBRL standard can offer in this process, and highlight new lines for further research. Findings - After analysing the current situation of the insurance industry, the paper concludes that technological systems, such as XBRL, are necessary to support the consolidation of financial information, and to ensure the digital transparency of the insurer organisations that are engaged in this new regulatory challenge. Practical implications - XBRL is a key resource in the European Common Reporting Project whose objective is the implementation of Basel II in the European Union. The implementation of Solvency II can benefit from this previous experience. Therefore, it suggest a proposal for action. Originality/value - The affiliation of the authors to the insurance sector, the academia and the XBRL community contributes to create a complete view of the possibilities of this breaking project.

Sub-Optimality of Income Statement-Based Methods for Measuring Operational Risk Under Basel II: Empirical Evidence from Spanish Banks

The New Basel Capital Accord (Basel II) was created with the intention of establishing a framework in which financial entities can manage their risks in a more detailed and efficient way. Within this general reform movement, Operational Risk emerges as a fundamental variable. OR can be managed by three alternative methods: the Basic Indicator Approach, Standard Approach and Advanced Measurement Approach. The choice of which method to adopt has become of supreme interest for senior banking managers. This study analyzes the exactitude of the underlying implicit hypotheses that support each method, distinguishing between income statement based methods and the management accounting based method. In the present study the non-optimum character of the two Income Statement-based methods is empirically confirmed, in the light of the data provided by Spanish financial entities.

Operational Risk Measurement in Banking Institutions and Investment Firms: New European Evidences

The banking/investment sector must deal with a new variable, Operational Risk, for explaining various recent crises and bankruptcies. Operational Risk, which can be defined briefly as the risk generated by possible failures of a entitys Information Systems (IS), must be measured, covered, mitigated and managed by applying a series of methodologies, each of which assumes that the IS of the bank operates at a certain Stage of Sophistication. The present study proposes a scheme of evolution that details the stages of enhancement in the sophistication of their IS that banking entities may implement, so as to be capable of capturing, mitigating and managing Operational Risk. Using econometric methods, we create a proxy variable to capture the IS Sophistication of each entity. Then, the factor of entity size has been analyzed, and the country effect is explored. Additionally, the importance of intangible assets is weighted, among others entity aspects. The entity size has been revealed as the variable with most influence on the plans formulated in this respect by European entities, against other variables also considered in the present study, such as the country effect or the importance of intangible assets. The work shows how IS decisions referring to Operational Risk management are very influenced by size. It could introduce competition differences in the European banking system.

BaselMapper: an experimental tool for managing operational risk in banks

The Basel Capital Agreement (Basel II) required all banking entities actively to manage Operational Risk by means of making explicit measurements and creating specific items in their general ledgers. Currently, the most sophisticated resource for handling transactional information is the XBRL-GL Taxonomy, an electronic dictionary of business elements or digital tags based on eXtensible Business Reporting Language (XBRL), the digital mark-up language for financial contexts, which in turn has the special feature of incorporating transactional or Global Ledger (GL) information. This study proposes, in one hand, an extension of that dictionary, to incorporate Operational Risk information, and in the other hand, a simple tool to edit and visualise such reports, called BaselMapper, which is tested with a business expert. Since this experimental tool, BaselMapper, was created in 2007 and validated in 2008, till the publication date of this article, several changes have occurred in both its normative and technical foundations. Due to the financial crisis, the Bank of International Settlements has developed a new set of reforms in banking regulation, beyond the Basel II agreement described here, called Basel III. To consult the current regulatory framework, please visit: http://www.bis.org/bcbs/basel3.htm Operational Risk aspects were not modified. Additionally, a new version of the XBRLGL taxonomy is now available, called Global Ledger, at: http://www.xbrl.org/GLFiles/ that still incorporates the COR-BUS module used here. So, essentially, these changes do not modify the aim of this paper, which is to promote the use of XBRL-enabled technology for Operational Risk measurement in banking institutions at the international level. Further research will be necessary to maintain this tool properly updated, with the substantial participation of more potential users.