Process of bank risk management is based on relationship of a number of subjects, each of which is responsible for a certain area.
These subjects are parliamentary and governmental bodies, banking supervisor authorities, shareholders, directors, executive managers, internal auditors, external auditors and the public. If any of these subjects does not carry out or presumably cannot perform the function in a risk management chain, then others have to compensate this gap due to expansion of own functions.
In most cases such role is assumed by banking supervisor authorities.
The role and responsibility of basic participants in risk management process are various.
It is possible to distinguish from them as those who are directly included in this process, and those who define state policy and the standard legal environment in which banks work, making the external regulating impact on intra bank risk management.
The main external bodies regulating a risk management in commercial banks are bodies of bank regulation and supervision.
Their main objective - creation of the standard and legal environment for optimization of quality and effective management of bank risks.
As a rule, state bodies of regulation and banking supervisor authorities adhere in the activity or ordering, or is market the focused principle.
Also numerous examples of application and the third option which it is possible to call mixed are known, i.e. it is market focused with elements of state regulation.
In general, naturally, the choice of option depends on bases of functioning of national economy.
The traditional ordering approach, as a rule, imposes tight restrictions on activity of financial institutions and often is expressed in attempts to cover regulation the majority of the known risks.
The lack of this approach consists in its lag effect caused by the fact that regulation regulations quickly become outdated and incapable are effectively influence risks which source financial innovations or the changing conditions in financial market can be, for example.
At it is market the focused regulation a priori recognize that the markets by determination function effectively and we are capable to cope with the arising financial risks and therefore give preferences to as much as possible free operating conditions.
In the majority of the leading countries regulation is based on the mixed principle and combines both approaches, inclining in this or that party during various periods of development of the country depending on specific circumstances.
From 1980th years the shift towards strengthening absolutely distinctly was outlined it is market the focused approach which allows to perform assessment and risk management without acceptance of excessively detailed regulations and recommendations about process management in regulated objects at rather wide scope of many types of risk.
Besides this approach can be adapted quite quickly to the changing market conditions.