STATUTORY REGULATION OF THE BANKING SECTOR RISKS: PROBLEMS AND KEY OBJECTIVES

Abstract

In the situation of the financial markets instability, more fierce competition in the banking sector, including international financial institutions, increasingly high complexity of bank transactions along with banks’ access to risk hedging tools, the task of establishing a risk management system by banks is gaining top priority. The banking activityis inseparable from taking risks.Therefore,the keymanagement objective of a credit institution is to define and maintain an optimum risk-return ratio. Though the general situation for development of the banking sector in Russia has been favorable in the recent years, the analysis of key indices that characterize risk exposure levels is not very encouraging. The main risks are still concentrated in the sphere of credit operations performed by commercial banks. To ensure the banking sector stability, not only competent risk management by credit institutions is required but also effective risk control mechanisms should be developed at the legislative and regulatory levels to set “rules of game” for commercial banks. The research paper gives a historical account of the subject in question, analyzes innovations in the legal regulation of the banking sector risks and proposes the most promising, according to the author, approaches to reformation of the risk management system.

Keywords

• risk-return ratio
• risk regulation
• potential loss provisions
• reserves against possible losses
• loan depreciation
• expected and contingent losses
• financial stability