A practical guide to identifying, analyzing and tackling operational risk in banks and financial institutions Created for banking and finance professionals with a desire to expand their management skill set, this book focuses on operational risk and operational risk events, as distinct from other types of functional risks. It was written by the experts at the world-renowned Hong Kong Institute of Bankers, an organization dedicated to providing the international banking community with education and training. Schools you in techniques for analyzing the operational risk exposure of banking institutions and assessing how operational risk impacts on other types of risk Provides expert guidance on how to design, plan and implement systems for operational risk management and quality control Describes a comprehensive approach to operational risk management that includes data collection, modeling and an overall risk management structure Shows you how to develop operational risk management solutions to help your company minimize losses without negatively impacting its ability to generate gains Offers expert guidance on various regulatory frameworks and how the latest Basel II and Basel III requirements impact a bank's operational risk management strategy and framework
Preface ix PART 1 OPERATIONAL RISK IN THE BANKING INDUSTRY 1 1 Overview and Definition 3 Learning Objectives 3 Introduction 4 What is Operational Risk? 4 Important Operational Risk Events 8 Distinguished From Other Risks 13 Distinguished From Operations Risk 17 Boundaries of Operational Risk 19 Drivers of Operational Risk Management 20 Integrating Related Disciplines 21 Summary 23 Key Terms 24 Study Guide 24 Further Reading 25 2 Operational Risk Management Frameworks 27 Learning Objectives 27 Introduction 28 Operational Risk Management Frameworks 28 ORM Frameworks and Goals 32 Summary 34 Key Terms 35 Study Guide 35 Further Reading 36 3 Case Studies 37 Learning Objectives 37 Introduction 38 Categories of Operational Risk 38 Lessons in ORM 58 Summary 60 Key Terms 60 Study Guide 61 Further Reading 61 PART 2 OPERATIONAL RISK PLANNING 63 4 Methods and Tools 65 Learning Objectives 65 Introduction 66 The ORM Process 66 Managing Operational Risk 76 Summary 80 Key Terms 82 Study Guide 82 Further Reading 83 5 Risk Identification 85 Learning Objectives 85 Introduction 86 Assessing Risk 87 Categorising Risk 90 Summary 96 Key Terms 97 Study Guide 97 Further Reading 98 6 Risk Measurement and Assessment 99 Learning Objectives 99 Introduction 100 Impact and Probability 101 Value-at-Risk 109 Loss and Capital Charge 111 Summary 115 Key Terms 116 Study Guide 117 Further Reading 117 PART 3 OPERATIONAL RISK MANAGEMENT 119 7 Risk Control and Mitigation 121 Learning Objectives 121 Introduction 122 Incident Management 122 Assumptions, Avoidance and Transference 126 Insurance 129 Internal Controls 132 Contingency Planning 134 Summary 135 Key Terms 136 Study Guide 137 Further Reading 137 8 Risk Reporting 139 Learning Objectives 139 Introduction 140 Risk Profile 140 Reporting 142 Incidents and Data Reporting 147 Summary 149 Key Terms 150 Study Guide 151 Further Reading 151 9 Related Techniques 153 Learning Objectives 153 Introduction 154 Scenario Analysis 154 Stress Testing 155 Operational Risk Models 159 Summary 169 Key Terms 170 Study Guide 170 Further Reading 170 PART 4 REGULATORY APPROACHES TO OPERATIONAL RISK 173 10 Regulatory Requirements 175 Learning Objectives 175 Introduction 176 Basel II 176 Basel III 179 HKMA Risk-Based Supervisory Approach 182 Approaches to Assessment 186 Basel III Risk Exposures 190 Summary 193 Key Terms 194 Study Guide 195 Further Reading 195 11 Risk Governance 197 Learning Objectives 197 Introduction 198 Risk Governance Structure 199 Other Considerations 207 RCSA, KRIs, and Risk Events 209 Summary 211 Key Terms 212 Study Guide 213 Further Reading 213 Index 215
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