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In recent years, supervisors and the banking industry have recognised the importance of operational risk. According to a recent survey, about 70% of banks consider operational risk as important as market or credit risks. Nearly a quarter of the same banks admit to operation-related losses of more than $1.6 billion.
Developments such as the use of more highly automated technology, the growth of e-commerce, large-scale mergers and acquisitions, and increased outsourcing all suggest that operational risk exposures are substantial and growing.
As a result, there is increased emphasis on the importance of sound operational risk management at financial institutions, and greater prominence of operational risk in banks' internal assessment and allocation processes. The banking industry is currently undergoing a surge of innovation and development in these areas.
Should financial institutions be concerned with operational risks? If so, how should they be assessed and intelligently integrated with other risks? What best pratices have emerged for the measurement and management of operational risks? This book provides the first authoritative and up-to-date treatment of all these issues.
PART I: REGULATION AND CONTROL
1. The rationale for regulation (Ralph Nash, Secretariat of the Basel Committee)
2. Mangement Responsibilities (David Clark, FSA)
3. The likely Impact of Operational Risk Regulation on the Financial Industry (Simon Wills, BBA)
4. A critique of operational risk regulation and control (Jacques Pezier, Warwick Business School)
PART II. CATEGORIES OF OPERATIONAL RISK
5. Execution, Delivery and Process Manangement (Richard Harrington, ISMA)
6. Data consortiums: Internatl and External Fraud (OpVantage)
7. Insurance: Disruption,systems failure and damage (Swiss-Re)
8. Legal Risk: Business and employment practice
PART III: MODELLING OPERATIONAL RISK
9. Understanding the models: mathematical background (carol alexander, ISMA centre)
10. Implementing the standardised approach (Jimmy Hinchliffe, FSA)
11. Implementing the internal measurement approach (Tony Peccia, CIBC)
12. Implementing the loss Distribution Approach (Michael Haubenstock, PWC)
13. Implementing the scorecard Approach (Tony Blunden, Ernst and Young)
14. Implementing a Bayesian Network (Algorithmics)