Fight the power: Why the industry needs to rethink op risk tail events
Industry data shows outsized operational losses are a regular feature of banking and traditional means of modelling them aren’t working. The industry needs to understand why and rethink its approach, argues Jonathan Rosenoer
In operational risk, conventional thinking and standard models peg extreme events as once-in-a-blue moon incidents – unfortunate incidents that happen to others. It is a view challenged by increasingly frequent reports of high-severity events – from HSBC’s $1.9 billion money-laundering fine to Knight Capital’s $440 million software glitch – and demolished by newly structured statistics showing extreme operational risk losses are emerging as a regular part of banking.
Since 2001, a consortium
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