The data puddle challenge

The loss event taxonomies currently in use are inadequate. The worst problem is the lack of clarity with regard to the boundary conditions between risk event categories. Tara McLenaghen explores the issues

Developing an operational risk taxonomy is far from an easy task. As noted by my colleague Rick Cech in his article Event Horizon (OpRisk & Compliance February 2007, pages 35–39), the challenges and ambiguities of the Basel II loss event hierarchy are now widely acknowledged, yet banks and industry associations have generally not strayed too far in establishing their own classification structures. This is in part due to the benefits of using an industry standard, but also reflects the difficulty