Pasqualina Porretta

Introduction to the Work and Operational Risk

This chapter describes the integrated risk approach used by the Authors for operational risk measurement and management, and presents a logic scheme to help readers better understand the different elements of Operational Risk Management (ORM). It also describes the evolutionary process of the definition of operational risk, its main features and various dimensions.

Almost Concluding Thoughts Between a Comparative Analysis and a Sensitivity Analysis: Look Over the Regulatory View

The chapter proposes a comparative analysis between the new regulatory approach (Standard Measurement Approach, SMA) and the existing one (Advanced Measurement Approach, AMA); provides a risk factor sensitivity analysis of the two approaches and attempts to highlight advantages and disadvantages of this new regulatory approach in the field of the Single Supervisory Mechanism Regulation (SSRM). In this perspective, and in the light of the main results of the comparative analysis, the chapter also tries to define the impact of the new regulatory approach on financial intermediaries in an integrated risk perspective and propose Operational RAF (Risk Appetite Framework) as an important operational management tool.

Operational Risk Management: Regulatory Framework and Operational Impact

Banks must establish an independent Operational Risk Management function aimed at defining policies, procedures and methodologies for identifying, measuring, monitoring and controlling operational risks. In this perspective, this chapter analyses (a) the regulatory framework on the operational capital requirement; (b) the regulatory view on Operational Risk Management; and (c) the new Supervisory Review and Evaluation Process (SREP) in relation to operational risk. The chapter also attempts to propose an integrated approach able to defining, managing, monitoring and reporting operational losses together with capital planning, ICAAP (Internal Capital Adequacy Assessment Process), RAF (Risk Appetite Framework) and risk culture of financial intermediaries also in accordance with the new SREP perspective.

EU Cohesion Policy and Microfinance

The aim of ensuring a balanced development of the territory of the European Union as well as equal social and economic opportunities to all individuals in the EU member states led European Union institutions to activate a number of financial instruments that may allow reducing the current structural economic gaps between different regions in Europe and establishing a regional development policy based on the concepts of economic, social solidarity and cohesion.1

Microfinance and Capacity Building in the EU Policy

Microfinance instruments, in particular microcredit, play a key role in the implementation of the European strategies to support entrepreneurship, employment, social and financial inclusion.1,2 These instruments, in fact, can support start-ups through the provision of microloans characterised by simplified administrative procedures and absence of collateral requirements, offering to socially excluded and disadvantaged subjects an opportunity to ensure dignified living conditions for themselves and their households. The economic crisis that has hit the European economy in recent years resulted in high social costs that call for the adoption of specific measures to support the weakest segments of the population as well as effectively contribute to the economic recovery through the creation of new development opportunities. Today, individuals at risk are not just those outside the labour market due to disadvantaged conditions, but also other numerous subjects — young people, women, immigrants, off-workers, those ejected from the labour market — who, although in possession of professional skills, are unable to enter (or re-enter) the labour market due to a scarce demand for jobs by enterprises and the impossibility to access credit. In this context, the European Commission regards microcredit as a key instrument to fight unemployment and combat the new forms of poverty, to promote access to credit and, more generally, to financial services, a necessary condition to fully participate in the social and economic life of the community.

OTC Derivatives and Counterparty Credit Risk Mitigation: The OIS Discounting Framework

In recent years, a complex regulatory framework has been developed, aimed at improving the functioning of the OTC derivatives market, reducing counterparty risk and enhancing transparency and mitigation for investors. We refer, in particular, to regulation of the financial markets (European Market Infrastructure Regulation), prudential supervision (Basel II and III) and the IFRS 13 Fair Value Measurement accounting regulations. These regulatory frameworks impact on financial intermediaries at organisational, procedural, measurement and collateralisation levels and, as will be seen throughout this chapter, on their pricing frameworks (or, better, on how cash flows should be discounted to define the mark to market of the financial asset). This chapter thus focuses on: (1) the regulatory framework related to counterparty risk (EMIR framework, Basel III, IAS/IFRS); and (2) methodologies to move from Libor/Euribor to OIS discounting in derivatives pricing.

Regulatory Framework and Supervisory Authorities in Microcredit Sector: A Comparative Analysis

The microcredit system in Morocco is considered one of the best and most advanced in all North Africa. It is regulated by Law No. 18-97 (published in the Official Gazette of 1 April 1999), whose art. 1 establishes: “Microcredit associations are those created in compliance with the provisions of Dahir No. 1-58-376 of 3 January (15 November 1958), which regulates the right of association aimed at providing micro-loans”. Articles 2 and 3 of Law No. 18-97: Define micro-loans as loans granted to economically disadvantaged individuals and aimed at starting or supporting enterprises, achieving thus their economic inclusion (art. 2); Set the maximum amount of micro-loans (established with special decree) in the amount of 50,000 Dirhams (DH, around 5,000 USD, art. 2); Establish that non-profit associations created pursuant the 1958 Dahir Act are entitled to engage in the microcredit business; All microcredit associations must be authorised by the Ministry of Finance to carry out the microcredit business as well as all complementary and instrumental activities, such as training, technical support and assistance, but they cannot engage in traditional banking services by receiving public money on current account, savings or similar (in accordance with article 2 of the Dahir No. 1-93-147 of 6 July 1993).

Mapping Microcredit Institutions/Operators: A Comparative Analysis

The microcredit sector developed in the early 1990s under the impulse of the national legislator and the international aid programme.’ The existence of Apex organizations for centralizing international aid and redistributing funds has probably improved international donors’ participation (Allaire et al., 2009). In fact, financial contributions by international agencies EIB and USAID2 were the key for the growth of the microcredit industry in Morocco.

The Microcredit Guarantee Funds an Institutions. A Comparative Analysis

Credit guarantee schemes are one option to facilitate microenterprises and SME’s in accessing the credit market. The credit guarantee schemes represent a vast and heterogeneous number of realities worldwide, usually classified into two main categories: guarantee companies (or institutions) and guarantee programmes.

Nearly Conclusive Considerations

After having analysed the peculiar characteristics of the microcredit sector and the guarantee activity carried out by the MFIs in the countries examined, it is now time for some (almost) conclusive considerations.