01 Sep 2006, Ellen Davis, Operational Risk & Regulation
The other day I heard the most extraordinary thing - a bank is working on how to price the operational risk levels into the counterparty risk calculations it performs on its credit derivative trades.
To do this, the bank was planning to use a fancy piece of kit that could extract information - actual contextual information - out of press releases, news articles and other news items about its counterparties. This tool would also surf the web and flag up information about a particular company in online news sources, blogs, forums and other web venues. It then turns this information into bits and bites that could be fed into the pricing model.
Apparently, this tool is so good that it can tell 'what' is being said - it doesn't just search for keywords, it actually makes sense of what it has found.
Now, I'm a pretty weathered old journalist... it takes an awful lot to impress me. But when I heard this, I thought, hey, this is the future. Gone are the days when reading the wire services and drinking with mates from other firms would give you a 'feel' for what is going on in back offices around the City or on Wall Street. Now, not only will this web thingy do it for you but it will spit out a number for you to use in your pricing as well. But the best part is that this fancy new tool could solve a host of problems for operational risk managers. It could be used to provide executives with a weekly reputational risk calculation, for example. Or, could you set this tool loose over employees' emails and let it flag up potential problems much more efficiently?
Perhaps in the next version of the tool, it would actually be able to read between the lines. Set it loose on the pronouncements from the Basel Committee on Banking Supervision or the European Commission and find out what phrases like 'home-host' and 'systematic internaliser' really mean.
Or perhaps I'm just daydreaming. Here at OpRisk & Compliance, we're doing more with technology too. You may have noticed some tweaks to the monthly email and to the website. Also this month we launched our blog, The Boiler Room, which can be found at http://www.blog.opriskandcompliance.com.
We also have a new briefing, sponsored by Indra, on the website on "The Challenge of Op Risk Regulatory and Economic Capital Calculation". This can be viewed on most computers using simple software at http://www.opriskandcompliance.com.
We hope to bring even more exciting web tools to our readers over the coming months. Stay tuned for more developments!
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