Basel II drives market for operational risk

The Financial Services Industry (FSI) is undergoing revision of capital requirements as a result of the Bank of International...

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The Financial Services Industry (FSI) is undergoing revision of capital requirements as a result of the Bank of International Settlements’ New Basel Capital Accord, also known as Basel II.

 

 

 

One of the most radical changes in the new accord is the inclusion for the first time of operational risk assessment, where the previous 1988 accord only covered market and credit risks.

While operational risk can be thought of as a ‘catch all’ for whatever is not covered by the other categories, a stricter definition is "the risk of loss resulting from inadequate or failed internal processes, people and systems, or from external events."

So this includes the effect of technology failure, fraud, legal uncertainties, and extreme events such as earthquakes. It does not include business strategic decisions, and reputation risk such as loss of confidence in a bank due to, say, people failure.

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This paper is reproduced from Butler Group's Research and Advisory Services. For more information on this and other technology focused services, contact Mike James on +44(0)1482 586149, email mike.james@butlergroup.com or visit www.butlergroup.com/company/products.asp

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