Evaluation of Operational and Market Risk in Albanian banking sector

Halit Xhafa & Bora Isaku

The purpose of this study is to analyze the effectiveness of the models used by the Albanian Banks to estimate the operational and market risk, by being focus in the restriction of the applied models. The two main pillars of this paper are Operational and Market risk. The actual procedure used by the banks to calculate the economic capital is based on a detailed model which represents accurately the loss distribution over one year. In this context, the objectives of this paper are to verify the effectiveness of the methodology used to measure and identify the event which causes losses and then proving that there exist some advantages for the banks in adopting more sophisticated internal models of managing risk since this implies lower capital requirement; to analyze the assumption and models used by banks to measure the risk; and to analyze the role of Bank of Albania.
Key words: Basel, Operational & Market risk, Bank of Albania
JEL classification: K22 E43 F42
PDF format below