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4
Vol. 5, No. 2, 2019-
DOI: https://doi.org/10.30525/2256-0742/2019-5-2-45-56
INNOVATIVE APPROACH IN THE ESTIMATOLOGY OF FINANCIAL INSTITUTIONS ECONOMIC SECURITY: POSSIBILITIES OF USE IN MANAGEMENT AND REGULATORY ACTIVITY WITHIN THE MEANS OF PROVISION OF THE STATE FINANCIAL SECURITY
Nataliia Zachosova1
Abstract. Ukraine's integration into the European economic space requires the conformity of many segments of the domestic economic system to the standards, norms and traditions of the EU. The financial market and its participants form the financial basis for economic development, mediate the capital movement, make it possible to form a powerful investment resource and provide financial cooperation at the supranational level. However, domestic financial services markets are now destabilized; the volumes of assets used by their professional participants are significantly lower than the financial potential of the financial institutions of the European Union markets, to the convergence with which the Ukrainian financial sector terribly seeks. In addition to the capacity dimension, a large number of destabilizing factors that have been contributing to its development in recent years remain a problematic aspect of the domestic financial market evolution. The purpose of this study is to develop an innovative approach to assessing the level of financial institutions' economic security, as well as substantiate its use in a management activity of company management to ensure a high level of profitability and in the regulatory activity of state authorities in order to guarantee the financial security of the state. Methodology. The methods of research will be: methods of induction and deduction, scientific abstraction and generalization, a method of organizing, expert method, graphical method for the identification of intermediate and final results of the study, as well as a generalization method for formulating conclusions and proposals at the end of the conducted scientific research. Results of the survey. The author's methodical approach to assessing the level of financial institutions economic security is offered. The possibility of using the results of assessing the level of financial institutions economic security by the top management of professional participants in the financial market has been established. The directions of its application by the national regulators of the financial market for the purpose of ensuring the financial security of the state through the mechanism of monitoring and control of the results of activities of financial intermediaries are determined. Practical implications. The proposed innovative approach in the estimatology of financial institutions economic security should be used by the state regulators of the financial market, in particular, by the National Bank of Ukraine and the National Commission, which performs state regulation in the field of financial services markets, to monitor the activities of professional financial market participants in order to conduct advisory and consultative work with their owners and managers, as well as for the development of strategic guidelines for the provision of the state financial security. Value/originality. Methodological approaches to assessing the economic security level of financial institutions in the process of managing their activities should be the basis of documentary support for security management of the system of economic security, and their reuse after the introduction or modernization of the mechanism of economic security system management of financial institutions will allow diagnosing the level of its effectiveness and, if necessary, to change the target guidelines for managing the economic security system to ensure maximum levels of the protection for the economic interests of companies and their clients from threats, as well as to ensure a high level of financial security of the state.
Key words: economic security, financial institution, financial security, management, level of economic security, management decisions, regulation, evaluation.
JEL Classification: E44, G10, G18, О16
Corresponding author:
1 Cherkasy National University named after Bogdan Khmelnytsky Ukraine. E-mail: [email protected]
1. Introduction
The urgency of the research. Financial security occupies an important place in the system of economic security of any state, and the financial system and financial markets are the sources of a large number of threats to the normal functioning of both financial institutions and manufacturing and trading enterprises, whose cost-effective activity, in turn, is the basis for normal state of financial security of all countries without exception. Thus, a stable, continuous, and productive activity of professional financial intermediaries is a prerequisite for improving the financial and, hence, economic situation at the macro level in the future. Consequently, the methodical task of assessing the economic security level, which was attained by the implementers of financial products and services, becomes relevant, since maintaining the normal functional state of the largest participants in the financial market becomes subject of national importance according to manifestations of economic imbalances and the effects of a political crisis.
Target setting. In the methodological plane, tools for assessing the economic security level of the certain types of financial institutions such as banks and insurance companies have been developed. However, at the application level, its use has not become widespread. For a number of financial intermediaries, for example, credit unions, investment and leasing companies, pawnshops, etc., there are no methodological tools for assessing the level of economic security. Thus, there is a need to identify the shortcomings of the existing methodological tools for diagnosing the financial institutions' economic security level and to make proposals for the development of a comprehensive methodology for diagnosing the economic security state, suitable for use by different types of professional participants in the financial market.
Actual scientific researches and issues analysis. Awareness of the problem of the need to ensure economic security at the macro level has a significant impact on the development of economic policies, both individual states and around the world, given the steady trend towards economic convergence and the economic system globalization. The fundamentals of security-oriented economic development were laid in the "new course" of the evolution of the US economy (Roosevelt, n.d.). The issue ofeconomic security continues to be relevant, and in its context, awareness of the role of the financial market and its financial stability is emerging to solve the problem of securing the country's economic system from various financial threats, as evidenced by the work of the Nobel Prize winner 2001 (Stiglitz, 2002). R. Creamer notes that "the domination ofthe financial sector has become a mortal danger to our economic security" (Creamer, 2011). The state of macro markets was attributed to a level of financial security (Athanasoulis, Schiller, van Wincoop, 1999).
In the modern conditions ofnational and supranational economic systems and their financial segments
development, the problem of security was disseminated in the scientific discussions of scholars of the whole world (Osberg, Sharpe, 2008; Ioan-Franc, Diamescu, 2010; Schimmel, Liu, Nicholls, Nechval, Yi-Lin Forrest, 2017). In the quest to provide recommendations for improving the level of economic security of the country, to the problems of the financial market and its professional participants functioning apply a lot of eminent scientists (Kopp, Kaffenberger, Wilson, 2017; Elliott, 2017; Matanda, 2015, Piotrovska, 2017). A comprehensive study of the issues of economic and financial security has revealed weaknesses in the mechanisms for diagnosing its current state. Some aspects of financial and economic security state analysis are studied in the publications of Polish scientists (Kosny, Piotrovska, n.d.) and researchers from Moldova (Perciun, Stratan, Timush, 2014). Americans suggest using the Economic Security Index as a new measure for research and policy analysis (Hacker, Huber, Nichols, Rehm, Schlesinger, Valletta, Craig, 2012). Ukraine also faces difficulties in establishing an assessment of the state of the national, economic, financial, and other components of the country security (Dyakonova, Nikitina, Sukhonos, Zhuravka, 2018; Momot, Ovchelupova, Solovyova, 2015; Shtefan, 2017; Kozachenko, 2016).
Uninvestigated parts of general matters defining. Without prejudice to the role of scientific developments aimed at studying the theory and practice of assessing the level of economic security of certain types of financial institutions, in particular, banks and insurance companies, further research and development of methodological approaches to the diagnosis of the state of economic security of professional participants in the financial market are necessary, given the importance of their effective activities to ensure the financial security of the state.
The analysis of the results of researches of foreign and domestic scientists made it possible to conclude that the existing methodological approaches to assessing the level of economic security of the state as a whole, as well as of certain types of economic entities, are currently obsolete. They do not take into account a number of important micro and macroeconomic indicators of economic development, and some of the indicators that continue to be calculated are excessively difficult to calculate, while others have lost their relevance. During the calculations, analysts find it difficult to find an information resource of the proper quality; most indicators are based on statistic data that is released too late for the timely identification of threats to individual components of economic security and their avoidance. However, the most significant disadvantage of traditional approaches to assessing the level of economic security of the state is the lack of indicator among the groups of indicators that would reflect the state of economic security of economic entities - the main producers, sellers and consumers of the national product, the resource base of the modern market economy, to which
financial market professional members also belong. As an efficiently organized financial sector is the basis for the formation of a modern architecture of a viable economic system, and the qualitative evolution of the financial market is the basis for the development of the country's economy, within this study, it is worthwhile to focus on the issue of assessing the level of economic security of financial institutions as the main actors to ensure the functioning of financial services markets.
The research objective is to develop an innovative approach to assessing the level of financial institutions economic security, as well as substantiate its use in a management activity of company management to ensure a high level of profitability and in the regulatory activity of state authorities in order to guarantee the financial security of the state.
Methodology. The author's approach to the methodology for assessing the level of economic security of financial institutions is proposed. This approach involves an analysis of the values of quantitative indicators and characteristics of qualitative signs of the state of the functional components of the system of economic security, the assignment of ball assessments, finding the sum of points weighted by weight factors, and calculating on this basis the values of indices of the state of each functional component of economic security system. The sum of these values allows us to determine which level of economic security - critical, minimum, satisfactory, high or maximum - has provided the financial institution with the process of managing the system of own economic security.
The logic of material presentation. At the first stage of scientific work, the author offered the representation of the approach to the staged development of a methodology for assessing the financial institutions' economic security level. At the next stage of the study, the author proposed indicators for assessing the level of economic security of financial institutions. The methodological approach to assessing the level of economic security of financial institutions was described. The study ends with the list of possibilities of using the results of assessing economic security level in management and regulatory activity.
2. Representation of the approach to the staged development of a methodology for assessing the financial institutions' economic security level
The author's approach to assessing the level of financial institutions' economic security is based on several assumptions. Firstly, the diagnosis of the economic security of financial market professional participants should be conducted using the expert method. Experts should be the representatives of financial intermediaries' top management. Such a choice of the method of evaluation was made due to the specificity of the
economic security state indicators, which should be taken into account and which cannot be mathematically calculated. Secondly, a list of indices for obtaining a reliable estimate of the economic security level should be formed using the principle of consistency - to take into account the characteristics of the state of various functional components of the economic security system. However, the proposed indicators should be easy to calculate or determine, since the assessment of economic security should be not only accurate but also timely. Thirdly, in order to ensure universality and understanding of the significance of each calculated indicator, positive or negative for the state of economic security, a final evaluation of their values is proposed based on the scorecard model. Three variants of the possible score are presented - 1, 2 and 3 points. Fourth, in order for the results of the analytical work to be used as an informative basis for making managerial decisions, it is advisable to transform quantitative assessment of economic security level into a qualitative characteristic of its state. Fifth, it is necessary to take into account the specific characteristics ofeach type offinancial institution in the process of analytical work. Given this, using a universal approach to assessing the level of economic security of financial institutions, the mechanism for its diagnosis should include the possibility of taking into account the particularities of a specific type of financial intermediary, which serves as an object of analysis.
A schematic picture of the approach to staged development of a methodology for assessing the level of economic security of financial institutions is shown in Figure 1.
Consequently, the development of a methodology for assessing the level of economic security of financial institutionwas carried out in several stages. At the first stage, a list of intermediate indices for evaluation was defined, the significance of which allowed to characterize the state of functional components of the universal comprehensive system of economic security of a professional participant in the financial market. At the second stage, a list ofspecific indicators was formed, on which the estimation of each intermediate indice was formed. These indicators reflect the effects of the institution's activities on the state of one or another component of the economic security system. At the third stage, the methods, ways, and procedures for calculating the proposed indicators were determined and their normative, threshold, and oriented values were established.
At the fourth stage, information sources were searched for the information and data needed to calculate the indicators within each intermediate indice. Given the periodicity of updating information on the status of financial institutions in generally available resource bases, it is proposed to conduct an assessment of the economic security level once a year. In the internal management structure of the financial institution, carrying out the diagnostics of the level of economic
I stage Formation of a list of intermediate indices
II stage Matching the indicators list for intermediate indices
The functional components of the financial institution economic security system are determined; for each of them assigned an index, the assessment of which will reflect the state of the subsystem of economic security
To calculate the value of indices, a specific list of indicators is determined
to diagnose its compliance with norms or benchmarks
IV stage Selection of resources for the information provision of the evaluation procedure
V stage Determining the mechanism for calculating the final integrated index of economic security
A set of information resources is defined for obtaining information about the values of indicators that do not require mathematical calculations and data sources for calculating the remaining indicators
Ill stage The choice of methods and techniques for measuring
X
Methodical approaches to calculating the values of indicators for estimating each intermediate index are offered; their normative, recommended or oriented values are set
A formula is developed to calculate the value of the final integrated index based on the estimates of all intermediate indices and taking into account the specifics of the economic security of certain types of financial institutions
A scale is created for interpreting the score for the final integrated index in a qualitative assessment of the level of economic security of the financial
institution. The characteristics of each
qualitative level of economic security are determined
Figure 1. Schematic representation of the approach to the staged development of a methodology for assessing the financial institutions economic security level
Source: made by the authors
security, it is advisable to entrust the specialists of the economic security service, and in case of its absence, an outsider person or organization may be involved in the outsourcing process for the professional performance of this task. At the fifth stage, a final integrated indice of the economic security level was developed, which was determined taking into account the specific weight of each indice of the state of the functional components of the economic security system of financial institutions. It was at this stage that it was possible to ensure that the specifics of the functioning of each type of financial institution were taken into account in the process of assessing the level of their economic security. At the sixth stage, a mechanism for transforming the value of the integral indice into a qualitative characteristic of the state of economic security of a financial institution was proposed, and a scale for the qualitative assessment of the key importance of the financial security level of the financial intermediary was formed. In the long run, it can be recommended the form of the economic security level report, which will be one of the sources of information and analytical support for the process of financial institutions economic security system management for their top management needs. Also,
such a report can be recognized at the level of state regulators of financial services markets as a mandatory form for providing information on the status of financial intermediaries. In this case, the assessment of the level of economic security will become an additional norm for the regulation of the activities of financial institutions, the observance of which will improve the level of financial security of the state.
3. Indicators for assessing the level of economic security of financial institutions
A set of indicators for assessing the financial institutions' economic security is contained in Table 1.
Thus, taking into account the sources of threats to the economic security of financial institutions, it is proposed to allocate eight of its functional subsystems, the state of which must be assessed in the diagnostic process: financial, intellectual and personnel, property (material), physical (power), information and analytical, technological, legal, market (external). Accordingly, the value of the final (integral) indice of the economic security level will be based on the estimates of the eight intermediate indices of the state of each of the subsystems of the economic security system of financial institutions.
Table 1
Proposed indicators for assessing the level of economic security of financial institutions
Intermediate indexes Oriented (normative, threshold) values of indicators
Indicators for indexes Low value (1 point) Satisfactory value (2 points) Optimal value (3 points)
1 2 3 4 5
1. Financial security index The result of economic activity Loss Profitability Growth of profitability in dynamics
Financial independence (coefficient) Less than 0.5 More than 0.5 1
Liquidity level Lower than normal Corresponds to the norm Higher than normal
Compliance with economic norms (prudential norms, regulatory requirements) Does not meet them Corresponds to 90%, discrepancies are eliminated Fully responsible
Estimation of financial services No Conducted for individual Conducted for all
consumers economic security level clients clients
2. Intellectual and The higher education level of the staff Up to 80% 81-90% More than 91%
personnel security index Personnel work experience in financial institutions Up to 2 years 2-5 years old More than 5 years
The period of work in this institution Up to 1 year 1-2 years More than 2 years
% of people with economic education Up to 30% 31-60% More than 61%
% of temporarily employed persons More than 20% 1-10% 0%
3. Property (material) security The volume of assets (in comparison with average market value) Less At the level More
index Depreciation of fixed assets More than 50% 30-50% Up to 30%
Branch network Only 1 office Up to 10 offices 10 or more outlets
Ownership of premises where offices are located Short Term Rentals Long term lease Ownership of the institution
Less than once a year More than once a year
Frequency of audit or at the request of the regulator Once a year (at the initiative of the management)
4. Physical (power) Presence of guards No Yes, 1 person Yes, 2 or more people
security index Use of lattices, armoured areas No In the premises where the financial assets are kept Yes, in all rooms
Services of professional security firms Not used Used as needed Service agreements are concluded
Access control systems for resources None Separate elements Full access control
3 or more cases (or no 1-2 times (incl. accidentally) There was no case of a crash
Cases of signalling during the last year signalling or cases are not fixed)
5. Information and analytical security Analytical department in the organizational structure No One person Operates constantly
index Cases of information loss during the last year More than 2 cases 1-2 minor cases Not recorded
Access to the Internet (for personnel) Full access Limited access Access only to sites that are required for work
Transparency level of activity Up to 70% 71-90% 91-100%
Sufficient information to make Information is missing Information is missing, Full information
managerial decisions but it can be obtained
% use of licensed software Up to 80% 80-90% More than 90%
The frequency of software update Not done Monthly Constantly
6. Technological security index Depreciation of equipment More than 51% 30-50% Up to 30%
IT department in the organizational structure No One person Operates constantly
Speed recovery of equipment after failures More than a day During the day A few hours
7. Legal security index Legal department in the organizational structure No One person Operates constantly
Number of appeals to court (per year) More than 2 1-2 appeals No appeal
% of won cases Up to 80% 81-99% 100% or not
Baltic Journal of Economic Studies tt. . „ „ „„,_ -J--Vol. 5, No. 2, 2019
(End of Table 1)
1 2 3 4 5
7. Legal security index Number of raider attacks (for the whole period of work) Several attacks One, there was no significant loss No attack
% of claims that ended for the institution with resources lost More than 10% 1-10% 0%
8. Market (external) security index An institution in rating charts Not included in ratings Included in the top 20 institutions Included in 10 top institutions
Period of work in the market Up to 2 years 2-5 years More than 5 years
Number of competitors More than 300 institutions 100-300 institutions Up to 100 institutions
Force majeure circumstances Yes, present now Yes, but do not exert direct influence No
The political situation in the country Tense Stable Favourable for the financial market development
4. A methodological approach to assessing the level of economic security of financial institutions
The maximum score for each intermediate indice is 15 points, and the minimum score is 5 points. In order to obtain a reliable and objective assessment of the economic security level, each indicator for indice should have its own relative weight, given its significance for the status of the functional component of the financial institutions' economic security system. This specific weight, as well as the specific weight of the intermediate indices in the final, integral indice, is determined using the Fishburne formula. For the indicators of the components of the financial institution economic security, xi (i = (1,n)) - for this case n = 5 for the group of indicators of one indice and n = 40 for the whole system of indices - within each indicator is evaluated its significance. Then the system of weights is constructed, so that:
la =
i=1
a > 0,i = 1, n
(1)
where ai is the weight of indicator, and i - the number of the current indicator, n - the number of indicators. Indicators are ranked within each intermediate indice for assessing the economic security level in the order of
decreasing their significance, that is, x1> x2> x3>......>
x>......> xn.
The scientific and methodological basis of using the Fishburne scale is as follows: the scale of the Fishburne is rational fractions whose denominator contains the sum of the arithmetic progression N of the first members of the natural series in step 1, and in the numerator, the elements of the natural series from N to 1, decreasing continuously by 1 (for example, 3/6, 2/6, 1/6 - in total we get 1). That is, the preference or significance of a given Fishburne index will be expressed in a reduction in the weight ratio (index) of a rational fraction of the
numerator with a lower level of significance (weaker alternative). The decision to use this method to identify weigh of indicators and indices for assessing the level of economic security of financial institutions for the needs of the study is due to the benefits of the Fishburne's approach, in particular:
- no not need to spend resources on the development of questionnaires, conduct expert surveys and initiate the processing of the data - experts immediately put out specific and fair, in their view, assessments;
- for the use of this method, there are no restrictions that will not allow using the author's methodical approach to assessing the level of economic security of financial institutions even in the case of changing the basic conditions for the functioning of their economic security system;
- the method allows to take into account additional information on the state of indices and indicators, which appears in the process of assessing the level of economic security of professional participants in the financial market, and to make adjustments to the calculations on the basis of additional information;
- there is no need to implement the realization of calculations by a complex mathematical algorithm.
Consequently, we will determine the weighting factors of indicators in the intermediate indices for assessing the level of economic security using the Fishburne scale (formula 2).
2 ■ (n - i + 1) a = ■
' n ■ (n + 1)
In the proposed methodological approach to assessing
the level of economic security of financial institutions,
8 groups of indicators (for the diagnosis of the status
of intermediate indices) were formed, 5 in each group.
So, for each indicator we have:
2 ■ 5 1
a = — = - = 0,3333
1 5 ■ 6 3
2 ■ 4 4 a2 = — = — = 0,2667
2 5 ■ 6 15
(2)
2 ■ 3 1 -.^-3 = 1 = 0,2 5 ■ 6 5
a =-.
2 2
- = _ = 0,1333 6 15
1 = -1 = 0,0667 6 15
So we get the weight of each indicator within the evaluation of a specific intermediate indice. Next, it was necessary to determine how indicators within each group are ranked by their values for the level ofeconomic security of the financial institution. To solve the task, five experts were interviewed for each of the 8 groups of indicators. The resulting weighting factor is calculated as the arithmetic mean of the scales proposed by the experts. For example, the indicator of the level of financial independence of the institution in the financial security indicators group was placed by the first and second experts in the third place in importance, and the third expert put it on the fourth place. Therefore, for it, the weight factor will be: 0,2 + 0,2 + 0,1333
_ à + à + à
3
3
: 0,1777
where a3 - the arithmetic mean of the i-th indicator. Such calculations were made for each indicator of the level of economic security of the financial institution within each intermediate indice. Thus, the experts - specialists in certain areas of financial institutions activity - established the importance of
the author's set of indicators for diagnosing the state of economic security of professional participants in financial services markets.
Table 2 summarizes the results of an expert assessment of the weight factors for indicators of the financial institutions' financial security level.
Consequently, the general formula for calculating the financial security indice of a financial institution is: In = 0,2667 I1+0,1333 I2+0,1867 I3+0,32 I4+0,0934 I5, (3) where Inf - financial security indice, I1 - I5 - indicators from Table 2.
Table 3 depicts the results of an expert assessment of weighting factors for indicators of the level of intellectual and personnel security.
The general formula for calculating the intelligence and personnel security indice of a financial institution is:
Inip = 0,1467 I1+0,2933 I2+0,3067 I3+0,1733 Lj+0,08 Is, (4) where Inip - intelligence and personnel security indice, Ii - I5 - indicators from Table 3.
Table 4 shows the results of expert evaluation of the values of weight factors for indicators of property (material) security.
Consequently, the formula for calculating the property (material) security indice has the following form: Inpm = 0,2800 I1+0,212+0,2533 I3+0,16 I4+0,1067 I5, (5) where Inpm - property (material) security indice, Ij - I5 - indicators from Table 4.
Table 2
Estimation of the weight factors of indicators of financial security level
a
3
a =
3
Indicators of financial security
The result of economic activity Financial Compliance with Estimation of financial
Expert independence (coefficient) Liquidity level economic norms (prudential norms, regulatory requirements) services consumers economic security level
Ii I2 I3 I4 I5
First 0,2667 0,2 0,1333 0,3333 0,0667
Second 0,2667 0,1333 0,2 0,3333 0,0667
Third 0,3333 0,1333 0,2 0,2667 0,0667
Fourth 0,2667 0,0667 0,1333 0,3333 0,2
Fifth 0,2 0,1333 0,2667 0,3333 0,0667
Weight factor (average) 0,2667 0,1333 0,1867 0,3200 0,0934
Table 3
Estimation of weight factors of indicators of intellectual and personnel security level
Expert Indicators of intellectual and personnel security
Higher education level of the staff Personnel work experience in financial institutions The period of work in this institution % of people with economic education % of temporarily employed persons
I1 I2 I3 I4 Is
First 0,1333 0,3333 0,2667 0,2 0,0667
Second 0,2 0,2667 0,3333 0,1333 0,0667
Third 0,1333 0,2667 0,3333 0,2 0,0667
Fourth 0,0667 0,2667 0,3333 0,2 0,1333
Fifth 0,2 0,3333 0,2667 0,1333 0,0667
Weight factor (average) 0,1467 0,2933 0,3067 0,1733 0,0800
Table 5 presents the results of an expert assessment of the values of the weight factors of physical (power) security indicators.
The formula for calculating the indice of physical (power) security has the form: Inpp = 0,28 Ii+0,16 I2+0,2413+0,24 I4+0,08 I5, (6) where Inpp - physical (power) security indice, n - n5 - indicators from Table 5.
Table 6 outlines the results of the expert evaluation of weighting factors for indicators of information-analytical security of financial institutions.
The formula for calculating the indice of information and analytic security has the form: Inia = 0,2533 I1+0,2267 I2+0,08 I3+0,1467 I4+0,2933 I5, (7) where Inia - information and analytical security indice, Ii - I5 - indicators from Table 6.
Table 7 summarizes the results of the expert evaluation of weighting factors for indicators of the level of technological security of financial institutions.
The formula for calculating the technological security indice is:
Int = 0,2267 I1+0,1333 I2+0,1867 I3+0,24 I4+0,2133 I5, (8)
where Int - technological security indice, I1 - I5 -indicators from Table 7.
Table 8 presents the results of an expert assessment of weighting factors for indicators of the legal security level of financial institutions.
The formula for calculating the legal indice is as follows:
In! = 0,24 I1+0,1067 I2+0,1733 I3+0,2267 I4+0,2533 I5, (9)
where Inl - legal security indice, I1 - I5 - indicators from Table 8.
Table 4
Estimation of weight factors of indicators of property (material) security level
Expert Indicators of property (material) security
Volume of assets (in comparison with average market value) Depreciation of fixed assets Branch network Ownership of premises where offices are located Frequency of audit
I1 I2 I3 I4 Is
First 0,3333 0,20 0,2667 0,1333 0,0667
Second 0,2667 0,1333 0,3333 0,2 0,0667
Third 0,2667 0,1333 0,3333 0,0667 0,2
Fourth 0,3333 0,2667 0,2 0,0667 0,1333
Fifth 0,2 0,2667 0,1333 0,3333 0,0667
Weight factor (average) 0,2800 0,2000 0,2533 0,1600 0,1067
Table 5
Estimation ofweight factors of indicators of physical (power) security level
Expert Indicators of physical (power) security
Presence of guards Use of lattices, armoured areas Services of professional security firms Access control systems for resources Cases of signalling during the last year
I1 I2 I3 I4 I5
First 0,3333 0,1333 0,2667 0,2 0,0667
Second 0,3333 0,2667 0,2 0,1333 0,0667
Third 0,3333 0,2 0,1333 0,2667 0,0667
Fourth 0,2 0,1333 0,2667 0,3333 0,0667
Fifth 0,2 0,0667 0,3333 0,2667 0,1333
Weight factor (average) 0,2800 0,1600 0,2400 0,2400 0,0800
Table 6
Estimation ofweight factors of indicators of information and analytical security level
Expert Indicators of information and analytical security
Analytical department in the organizational structure Cases of information loss during the last year Access to the Internet (for personnel) Transparency level of activity Sufficient information to make managerial decisions
I1 I2 I3 I4 I5
First 0,3333 0,1333 0,0667 0,2 0,2667
Second 0,1333 0,2667 0,0667 0,2 0,3333
Third 0,2 0,3333 0,0667 0,1333 0,2667
Fourth 0,2667 0,2 0,1333 0,0667 0,3333
Fifth 0,3333 0,2 0,0667 0,1333 0,2667
Weight factor (average) 0,2533 0,2267 0,0800 0,1467 0,2933
Table 7
Estimation of weight factors of indicators of technological security level
Expert Indicators of technological security
% use of licensed software Frequency of software update Depreciation of equipment IT department in the organizational structure Speed recovery of equipment after failures
I1 I2 I3 I4 Is
First 0,2667 0,0667 0,2 0,3333 0,1333
Second 0,2667 0,1333 0,0667 0,3333 0,2
Third 0,2 0,0667 0,3333 0,1333 0,2667
Fourth 0,1333 0,0667 0,2 0,3333 0,2667
Fifth 0,2667 0,3333 0,1333 0,0667 0,2
Weight factor (average) 0,2267 0,1333 0,1867 0,2400 0,2133
Table 8
Estimation of the weight factors of indicators of legal security level
Indicators of legal security
Legal department in the organizational structure Number of Number of raider attacks % of claims that ended
Expert appeals to court (per year) % of won cases (for the whole period of work) for the institution with resources lost
I1 I2 I3 I4 Is
First 0,2667 0,0667 0,1333 0,3333 0,2
Second 0,3333 0,0667 0,1333 0,2 0,2667
Third 0,2667 0,0667 0,1333 0,2 0,3333
Fourth 0,2667 0,1333 0,3333 0,0667 0,2
Fifth 0,0667 0,2 0,1333 0,3333 0,2667
Weight factor (average) 0,2400 0,1067 0,1733 0,2267 0,2533
Table 9
Estimation of weight factors of indicators of market (external) security level
Indicators of market (external) security
Expert Institution in rating Period of work in the Number Force majeure Political situation
charts market of competitors circumstances in the country
I1 I2 I3 I4 Is
First 0,3333 0,2667 0,1333 0,2 0,0667
Second 0,2667 0,3333 0,2 0,0667 0,1333
Third 0,2 0,3333 0,2667 0,0667 0,1333
Fourth 0,2667 0,2 0,0667 0,3333 0,1333
Fifth 0,2667 0,3333 0,1333 0,2 0,0667
Weight factor (average) 0,2667 0,2933 0,1600 0,1733 0,1067
Table 9 shows the results of an expert assessment of the weight factors of indicators of the level of market (external) security of financial institutions.
The general formula for calculating the indice of the market (external) security is: Inme = 0,2667 I1+0,2933 I2+0,16 I3+0,1733 I4+0,1067 I5, (10) where Inme - market (external) security indice, Ii - I5 -indicators from Table 9.
To determine the weights of the intermediate indices of economic security in the final (integral) indice, we apply the Fishburne formula again:
a = — = 2 = 0,2222
1 8 ■ 9 9
a2 =-
2 ■ 7 7
8 ■ 9
36 = °'1944
^ = 1 = 0,1667 8 ■ 9 6 '
5 = — = 0,1389 9 36
4 1 4 = 1 = 0,1111 9 9
3 9 2 9 1
9 36
— = 0,0833 12
— = 0,0556 18
— = 0,0278
Table 10 presents the results of an expert evaluation of the weighting factors of all intermediate indices
a
3
a =
4
a
5
a
6
a
7
a =
8
Table 10
Expert assessment of the weight factors of intermediate indices depending on the type of financial institution in the integral indice of economic security level
Weight of indices in economic security level
Type of financial institution Is 'Ö G 8 ^G ÎH vu 3 T¡ c h ol e « g 3 eur & 3 oe rs of physical ) security dt a 'C n 2 3 one oj 2 </> •--rtrt f ic -§ 1 g o s ec ■M ^ ¡o * 3 rS U S 8 0 **
o % ics id •S 1 § ts nr .3 to !P e ir u ¿3 3 ¿a £ Indice i (powei cS-B ^ s rt 2 1 s et U <y is ds ndI en cr ¿o s
Banks 0,2111 0,1833 0,1611 0,1000 0,1389 0,0556 0,1056 0,0445
Insurance companies 0,2111 0,1445 0,2055 0,0667 0,1167 0,0334 0,1445 0,0778
Credit unions and other institutions of the sector of credit co-operation 0,15 0,0556 0,2 0,1056 0,1333 0,0833 0,1389 0,1333
Investment companies (asset management companies, non-state pension funds, etc.) 0,2166 0,1556 0,0722 0,0889 0,2 0,15 0,0278 0,0889
Financial companies 0,2111 0,0778 0,1555 0,05 0,1278 0,1 0,1333 0,1444
of financial institutions economic security level. The evaluation was carried out according to an algorithm analogous to the estimation of the weighting factors of indicators of each intermediate indice, therefore in Table 10, only the final result of an expert evaluation is presented. Note that for different types of financial institutions, different weights were determined for adjusting the values of the same indices. This is explained by the specifics of the functioning of the different types
of financial institutions and the peculiarities of the construction of internal mechanisms for the protection of their resources within the framework of ensuring economic security.
The data obtained from experts and processed by means of mathematical calculations provide an opportunity to propose formulas for assessing the level of economic security for various types of financial institutions:
Is (bank) = 0,2111 Inf + 0,1833 Inip + 0,1611 In^ + 0,1 Inpp + 0,1389 Inia + 0,0556 Int + 0,1056 In + + 0,0445 Inme; (11)
Is (insurance company) = 0,2111 Inf + 0,1445 Inip + 0,2055 ¡v + 0,0667 Inpp + 0,1167 Inia + 0,0334 Int + + 0,1445 In! + 0,0778 Inme; (12)
Is (credit union) = 0,15 Inf + 0,556 Inip + 0,2 Inpm + 0,1056 Inpp + 0,1333 Inia + 0,0833 Int + 0,1389 In + + 0,1333 Inme; (13)
Is (investment company) = 0,2166 Inf + 0,1556 I^ + 0,0722 Inpm + 0,0889 Inpp + 0,2 Inia + 0,15 Int + +0,0278 In! + 0,0889 Inme; (14)
Is (financial company) = 0,2111 Inf + 0,0778 Inip + 0,1555 Inpm + 0,05 Inpp + 0,1278 Inia + 0,1 In + +0,1333 In + 0,1444 Inme; (15)
where Is - the level of economic security.
Since, according to the proposed methodological approach, the maximum score of each intermediate indice is 15 points (if all five its indicators are estimated at 3 points), and the minimum is 5 points (if all five its indicators are estimated at 1 point), then after adjusting the estimates of indicators and indices for the above weighting factors, it is necessary to determine the quantitative limits of possible qualitative characteristics of the levels of economic security of financial institutions using equal intervals of probable values: critical level of economic security - 5 < Is <7; minimum level of economic security - 7 < Is <9; satisfactory level of economic security - 9 < Is <11; high level of economic security - 11 < Is <13; maximum level of economic security - 13 < Is <15.
5. Possibilities of using the results of assessing economic security level in management and regulatory activity
With actual and reliable information on the level of economic security of a financial institution, its
owners and top management will be able to make right management decisions regarding the strategic orientations of the economic development of the institution and tactical measures of its economic activity. Regulators of financial services markets based on the data of economic security state of their professional participants will be able to timely identify financial intermediaries who are in danger of bankruptcy and liquidation, and whose subsequent activities, without proper control and support, can have fatal consequences for the welfare of their clients. Possibilities for using the results of assessing the level of economic security in management and regulatory activities are summarized in Table 11.
6. Conclusions
The possibility of using the results of the assessment of the level of economic security of financial institutions by the top-management of professional participants in the financial market has been established. At a critical level of economic security, the heads of institutions are
. Baltic Journal of Economic Studies Vol. 5, No. 2, 2019---
Table 11
Possibilities of using the results of assessing economic security level in management and regulatory activity
The level of security Options for managerial decisions for top management Options for regulators of financial services markets in order to ensure the financial security of the state
Critical Optimization of the organizational structure with the allocation of the economic security subdivision; external specialists involvement for the formation of mechanisms for protecting the institution from all kinds of threats; attraction of funding sources for security measures; start of preventive risk management; development of documentation support for the economic security system functioning Conduct a monitoring of the institution's activities in retrospect; investigation of the circumstances that caused the economic danger; consideration of the possibility of a financial intermediary leaving the market and taking measures to secure the financial interests of its clients; introduction of a temporary administration; for systemic financial institution -consideration of the possibility of their nationalization
Minimum Development of the concept and strategy of ensuring economic security; organization of training of personnel involved in the problematic subsystems of economic security process; increasing the frequency of inspections of the state of security; increasing the budget of financing security measures; establishing a clear list of tasks for those involved in the development of threats response Strengthening oversight of the institution's activities; taking control of its operations and processes for the implementation of financial products and services; advising on improving security; sending experts, consultants and supervisors to restore economic security; carrying out a re-examination and assessment of the level of economic security in six months
Satisfactory Aiming temporarily free financial resources for security measures; increase staffing in security departments; invitation of consultants from specialized firms to optimize the architecture of the economic security system; the introduction of security-oriented management Providing recommendations and consultations on raising the level of economic security; control over the activity of the institution in the usual mode; consideration of the possibility of state support to the institution in the future; conduct a re-examination and assessment of the level of security
High Increasing the level of transparency of the institution; formation of the image of a financial intermediary capable of protecting the assets of clients; introduction of the practice of customer service taking into account the level of their economic security; re-assessing the level of economic security in six months Involvement the top-management of the institution to form groups of experts for consultations of raising the level of economic security for other market participants; minimal control and supervision for the institution; allocation of high ranking positions in national ratings
Maximum Expansion and diversification of financial activities in order to increase profitability; search for competitive advantages; taking measures to maintain the achieved level of economic security Work with the management of financial institution on the advisory and consultative basis; provision of state guarantees in case of necessity of expansion of activity; use of financial intermediation services of an institution for work with state financial resources
invited to optimize the organizational structure with the allocation of the economic security unit, to seek the help of specialists, to develop preventive measures against the internal and external threats. At a minimum level of economic security, it is expedient to develop or update the conceptual framework for the functioning of the economic security system and pay attention to its development strategy. At a satisfactory level of economic security, it is recommended that a human resources policy be launched to establish security-oriented management of the financial institution. At a high level of economic security, efforts should be made to publicize this fact by extending the transparency of the financial institution's activities. This will promote
a positive image of the company in the financial market and attract new customers. At the maximum level of economic security, managerial decisions of top management should be aimed at achieving a balance between its maintenance and the allocation of resources for the development of the institution and expansion of its activities.
The expediency ofusing by the state financial regulators the information obtained in the process of assessing the level of economic security of financial institutions for the purpose of realization of the goal of ensuring the financial security of the state through the mechanism of monitoring and control of the results of activities of financial intermediaries has been substantiated.
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