Operational risk
WHAT IS THIS? Operational risks are those arising from people, processes and systems – the biggest form of exposure for many industries, but one that was neglected by financial firms until the collapse of Barings Bank in 1995. It was added to the Basel capital framework in 2004, but attempts to model operational risk were dealt a heavy blow by the huge, unforeseen losses suffered by banks in the aftermath of the financial crisis.
Basel output floor to bind 29% of big banks
But risk-based capital requirements would constrain the largest number of international lenders
European banks set for 18.6% capital hike under Basel III
Model output floor and higher credit and op risk charges will drive most of the increase
A behavioural lens could help manage human risk
Human decision-making needs careful watching. For that, behavioural science can help
FCA has active pipeline of misconduct investigations
As expansion of SMR to smaller firms looms, regulator says plenty of bankers are under scrutiny
Applying existing scenario techniques to the quantification of emerging operational risks
This paper sets out techniques for: (a) identifying systematically emerging threats, their timescales, and interrelationships (eg, feedback loops and domino effects); (b) quantifying operational risks through structured scenario analysis processes that…
Libor transition and implementation – Covering all bases
Sponsored Q&A
On the selection of loss severity distributions to model operational risk
This paper presents truncation probability estimates for loss severity data and a consistent quantile scoring function on annual loss data as useful severity distribution selection criteria that may stabilize regulatory capital.
Aussie regulator signals tougher misconduct stance
Asic warns it will use new powers to punish misconduct in wake of excoriating Royal Commission review
Op risk data: Sanctions-busting fines cost banks $20bn
Also: ABN pays out for risk profiling fail; Deutsche settles nepotism charges. Data by ORX News
The use of business intelligence and predictive analytics in detecting and managing occupational fraud in Nigerian banks
The goal of this paper is to illustrate how Nigerian banks, and indeed banks elsewhere, can develop solutions that incorporate both BI and predictive analytics techniques in detecting, predicting, preventing and managing occupational fraud.
Complex op risk models open to high error, study finds
Measuring 1-in-1,000 year loss events ‘unrealistic’, researchers say
New op risk taxonomy set for October debut
Project is being closely watched by banks and regulators amid frustrations with legacy Basel approach
Carney: Germany and France risk Brexit derivatives cliff edge
BoE governor says it is in EU countries’ “interest” to ensure full viability of financial contracts pre-Brexit
Uniform? Op risk capital rules go their own ways
Europe and Canada set to include historical losses in new standardised approach; Australia probably not
Op risk data: Mifid fines hit $140m
Top five: Deutsche pays €175m to settle derivatives bribery claims. Data by ORX News
Goldman’s op RWAs fall 8% in Q2
Removal of op risk events from AMA model dataset reduced capital requirement
ABN Amro cuts op RWAs by €1bn
Model updates lower AMA-calculated portion of op risk capital
Barclays seeks op risk capital relief
Bank claims that lifting of capital floor would raise CET1 ratio roughly 60 basis points
Basel III op risk method a stronger guard against losses – EBA
Number and size of op risk loss overshoots relative to capital would have been lower under new standardised approach
Banks queasy over idea of building cyber trust
They agree that sharing intel on cyber threats is a good thing. But that doesn’t mean they want to
Model update pushes ING’s op RWAs up 17%
Changes to AMA model behind €6.2 billion uplift
PPI claims take bite out of Lloyds’ capital
Bank says it received average of 150,000 PPI information requests per week in Q2
FRTB internal models in fight for survival
Basel III capital floor leaves banks struggling to justify own-models approach, say risk experts
Risk Technology Awards 2019: Making machines more helpful
Machine learning can be too efficient; now, vendors are looking for ways to make it more accurate. Clive Davidson looks at the stories behind this year’s Risk Technology Awards