Operational risk and the great financial crisis

Marcelo Cruz

The financial crisis was precipitated by the decline of US real estate prices and the subsequent disintegration of the mortgage-backed securities (MBS) market. As most banks had a significant share of their balance sheet composed of these MBS, a worrying number of them were deemed insolvent and had to be rescued by government bailouts. Although this banking crisis was mostly due to credit risk, a closer look reveals that there were a number of operational risks that went unnoticed or unmanage