Op risk family tree challenges Basel’s business line focus

Cladistic analysis shows importance of control failure, crime and fraud

Tree branches
Branching out: researchers are applying biological concepts to op risk

The study of operational risk events may, on the face of it, seem unrelated to the science of evolutionary development. But the techniques used to reconstruct the tree of life – a branch of biology known as cladistics – can produce some interesting insights about the common features of the two disciplines, and call into question the business line-based analysis used under Basel capital rules.

Cladistics reconstructs ancestry based on a principle of parsimony: the cladogram, or evolutionary tree,

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