Institutional Aspects of Prudential Supervision of Banks in Bosnia and Herzegovina with Special Emphasis on Banking Risk Management

The goal of this paper is to analyze banking regulation in Bosnia and Herzegovina and the progress made by banks in the management of banking risks. Basel Committee on Banking Supervision requires banks to establish a reasonable infrastructure for risk management. This infrastructure should identify, measure, monitor and control the risks that the bank is exposed to their operations. In this sense, the work was carried out research on the management of credit risk, liquidity risk and operational risk in order to gain knowledge about the progress of the banking sector in Bosnia and Herzegovina on the implementation of Basel 2. This paper represents the results of a research carried out on twenty out of thirty planned banks in Bosnia and Herzegovina that were surveyed during 2009, which makes 66.6% of the total sample (or 83.17% of total assets of the banking sector in Bosnia and Herzegovina). Summarized results of the questionnaire also showed further progress of the banks in complying with Basel 2, although it turned out that they often react to developments and changes without the existence of necessary infrastructure and business culture to keep it