Introduction

Rafael Cavestany

We write this book (2015) while the world economy is still recovering from the largest economic crisis since the Great Depression. Many of the current crisis causes can be traced to consecutive operational failures (Robertson 2011), including mortgage fraud, model errors, negligent underwriting standards and failed due diligence combined with loosely implemented innovation trends in finance. Mortgage originators, mortgage bundlers, credit-rating agencies, asset managers, investors and, ultimately, regulatory agencies were responsible for many of these operational failures.

The consequences have included severe depletion of capital and undermined confidence in the financial system, causing the downfall of many large, well-established financial institutions, and forcing a deep restructuring of the financial sector in many of the most advanced economies.

The Basel II Committee defines operational risk as “the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events”. Internal processes, people, and systems or external events directly impact on the institution’s business and strategy execution, endangering the institution’s

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