The Conceptual Basis of an Integrated Risk Management System for Second-Tier Banks

Abstract

Object: To study the essence and features of the main types of banking risks; to identify the conceptual foundations of the model of integrated risk management for STBs. It is important to note that integrated risk management system assumes strategic decision-making that will contribute to the achievement of the bank’s overall corporate goals, i.e. the bank needs to embed the risk management system in its overall strategy. Methods: Systematic, structural methods of analysis, a logical and integrated approach to process assessment, systematization, and classification. Findings: The parameters of a conceptual model of integrated risk management system for second-tier banks have been identified. In particular, classification of banking risks and its diversification has been revised to improve the performance of risk operations and business processes, including using the principle of coverage and modeling. Conclusions: While implementing their activities, second-tier banks face various types of risks different from each other in various factors and at the same time closely interrelated with each other. In some cases, risk types may relate to different elements due to their interrelation and interdependence. Since risks are increasingly an integral part of the activities of any bank, and more so, they interact with each other, in today’s volatile environment, they become one of the most important factors affecting the bank’s sustainability and financial results. Identification of the parameters of the integrated risk management system’s conceptual model contributes to strategic decision-making that will, in turn, support achieving the bank’s overall corporate goals.