The Essentials of Risk Management, Third Edition, 3rd Edition

14

OPERATIONAL RISK

Operational risk is both the oldest and the newest threat faced by financial and nonfinancial institutions. Banks have always had to protect themselves from key threats to their operations such as bank robbery and white-collar fraud.

Until recently, the management of these threats focused on practical techniques for minimizing the chance of loss, whether this meant putting a security guard at the door, establishing the independence of the internal audit team, or building robust computer systems. Unfortunately, few banks attempted to either put a specific economic number on the size of the operational risks they faced or manage these risks systematically as a risk class.

Times have changed. Banks and other financial institutions ...