In December 2017, the Basel Committee published the final version of its standardized measurement approach (SMA) methodology, which will replace the approaches set out in Basel II (ie, the simpler standardized approaches and advanced measurement approach (AMA) that allowed use of internal models) from January 1, 2022. Independently of the Basel III rules, in order to manage and mitigate risks, they still need to be measurable by anyone. The operational risk industry needs to keep that in mind.
While the purpose of the now defunct AMA was to find out the level of regulatory capital to protect a firm against operational risks, we still can – and should – use models to estimate operational risk economic capital. Without these, the task of managing and mitigating capital would be incredibly difficult. These internal models are now unshackled from regulatory requirements and can be optimized for managing the daily risks to which financial institutions are exposed. In addition, operational risk models can and should be used for stress tests and Comprehensive Capital Analysis and Review (CCAR).
The Journal of Operational Risk also welcomes papers on nonfinancial risks as well as topics including, but not limited to, the following.
- The modeling and management of operational risk.
- Recent advances in techniques used to model operational risk, eg, copulas, correlation, aggregate loss distributions, Bayesian methods and extreme value theory.
- The pricing and hedging of operational risk and/or any risk transfer techniques.
- Data modeling external loss data, business control factors and scenario analysis.
- Models used to aggregate different types of data.
- Causal models that link key risk indicators and macroeconomic factors to operational losses.
- Regulatory issues, such as Basel II or any other local regulatory issue.
- Enterprise risk management.
- Cyber risk.
- Big data.
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This paper uses the ten laws of operational risk along with taxonomies for inadequacies or failures and their impacts, and it also draws parallels with past crises, in order to make systematic predictions.
The paper presents an analysis of correlation effects of economic factors on the operational risk losses of a medium-large UK retail bank, and it recommends that causal factors that effect operational risk should be identified.
This paper examines how people risk is managed in banks using interview data obtained from operational risk management experts working in the UK banking sector.
This study focuses on the foundational technology of fintech to address the challenges posed by its specific form of risk.
In this paper, the authors investigate financial fraud in companies listed on the Athens Stock Exchange during the period 2008–18 and propose a model to detect fraudulent financial statements.
This paper revisits the linkage between internal audit function characteristics and internal control quality and proposes a random polynomial model for assessing ICQ.
In this study, different value-at-risk models, which are used to measure market risk, are analyzed under different estimation approaches and backtested with an alternative strategy.
In this paper, the authors propose a family of copula-based multivariate distributions with g-and-h marginals.
This study aims to test the sufficiency of the solvency capital requirement approach for calculating operational risk using the standard formula as defined in Solvency II.
The role of management accounting practices in operational risk management: the case of Palestinian commercial banks
This paper follows an exploratory, descriptive approach to investigate the role that management accounting practices plays in managing operational risks in the Palestinian commercial banking sector.
Fighting Covid-19 in countries and operational risk in banks: similarities in risk management processes
This paper shows how banks managing operational risk and countries tackling Covid-19 could learn from each other to overcome obstacles in effectively mitigating major risks.
Risk disclosures in annual reports: the role of nonfinancial companies listed on the Athens stock exchange
This study analyzes the risks disclosed by all nonfinancial companies listed on the Athens stock exchange by undertaking content analysis of their annual reports during the period 2005–11.
This paper presents new results on the nonhomogeneous bivariate compound Poisson process with a short-term periodic intensity function.
This study examines IP address footprints as a proxy for cyber risks in public firms.
This paper proposes a KIDD (key impact deep dive) approach for assessing extreme risks based on assessing key impact types.
This paper models an overall operational risk loss caused by the accumulation of intermediate losses incurred at each process via a mechanism of network contagion across distinct processes within the boundary of a bank.
An approach to simultaneously assess operational risk and maturity levels in information technology management
The aim of this paper is to investigate the operational risk and maturity level of IT in an anonymized financial institution, based on the American Productivity and Quality Center benchmark and control objectives for information and related technologies.
Risk governance, market competition and operational risk disclosure quality: a study of the ASEAN-5 banking sector
This paper investigates the impact of risk governance and market competition on banks' operational risk disclosure (ORD) quality (total and voluntary) in the Association of Southeast Asian Nations (ASEAN-5) banking sector
The economic cost of a fat finger mistake: a comparative case study from Samsung Securities’s ghost stock blunder
This paper quantifies the economic cost of Samsung Securities’s ghost stock blunder using the synthetic control method.