A practical guide to identifying, analyzing and tackling operational risk in banks and financial institutions Created for banking and finance professionals with a desire to expand their management skill set, this book focuses on operational risk and operational risk events, as distinct from other types of functional risks. It was written by the experts at the world-renowned Hong Kong Institute of Bankers, an organization dedicated to providing the international banking community with education and training.
- Schools you in techniques for analyzing the operational risk exposure of banking institutions and assessing how operational risk impacts on other types of risk
- Provides expert guidance on how to design, plan and implement systems for operational risk management and quality control
- Describes a comprehensive approach to operational risk management that includes data collection, modeling and an overall risk management structure
- Shows you how to develop operational risk management solutions to help your company minimize losses without negatively impacting its ability to generate gains
- Offers expert guidance on various regulatory frameworks and how the latest Basel II and Basel III requirements impact a bank's operational risk management strategy and framework
Table of Contents:
Preface ix
PART 1 OPERATIONAL RISK IN THE BANKING INDUSTRY 1
1 Overview and Definition 3
Learning Objectives 3
Introduction 4
What is Operational Risk? 4
Important Operational Risk Events 8
Distinguished From Other Risks 13
Distinguished From Operations Risk 17
Boundaries of Operational Risk 19
Drivers of Operational Risk Management 20
Integrating Related Disciplines 21
Summary 23
Key Terms 24
Study Guide 24
Further Reading 25
2 Operational Risk Management Frameworks 27
Learning Objectives 27
Introduction 28
Operational Risk Management Frameworks 28
ORM Frameworks and Goals 32
Summary 34
Key Terms 35
Study Guide 35
Further Reading 36
3 Case Studies 37
Learning Objectives 37
Introduction 38
Categories of Operational Risk 38
Lessons in ORM 58
Summary 60
Key Terms 60
Study Guide 61
Further Reading 61
PART 2 OPERATIONAL RISK PLANNING 63
4 Methods and Tools 65
Learning Objectives 65
Introduction 66
The ORM Process 66
Managing Operational Risk 76
Summary 80
Key Terms 82
Study Guide 82
Further Reading 83
5 Risk Identification 85
Learning Objectives 85
Introduction 86
Assessing Risk 87
Categorising Risk 90
Summary 96
Key Terms 97
Study Guide 97
Further Reading 98
6 Risk Measurement and Assessment 99
Learning Objectives 99
Introduction 100
Impact and Probability 101
Value-at-Risk 109
Loss and Capital Charge 111
Summary 115
Key Terms 116
Study Guide 117
Further Reading 117
PART 3 OPERATIONAL RISK MANAGEMENT 119
7 Risk Control and Mitigation 121
Learning Objectives 121
Introduction 122
Incident Management 122
Assumptions, Avoidance and Transference 126
Insurance 129
Internal Controls 132
Contingency Planning 134
Summary 135
Key Terms 136
Study Guide 137
Further Reading 137
8 Risk Reporting 139
Learning Objectives 139
Introduction 140
Risk Profile 140
Reporting 142
Incidents and Data Reporting 147
Summary 149
Key Terms 150
Study Guide 151
Further Reading 151
9 Related Techniques 153
Learning Objectives 153
Introduction 154
Scenario Analysis 154
Stress Testing 155
Operational Risk Models 159
Summary 169
Key Terms 170
Study Guide 170
Further Reading 170
PART 4 REGULATORY APPROACHES TO OPERATIONAL RISK 173
10 Regulatory Requirements 175
Learning Objectives 175
Introduction 176
Basel II 176
Basel III 179
HKMA Risk-Based Supervisory Approach 182
Approaches to Assessment 186
Basel III Risk Exposures 190
Summary 193
Key Terms 194
Study Guide 195
Further Reading 195
11 Risk Governance 197
Learning Objectives 197
Introduction 198
Risk Governance Structure 199
Other Considerations 207
RCSA, KRIs, and Risk Events 209
Summary 211
Key Terms 212
Study Guide 213
Further Reading 213
Index 215
About the Author :
The Hong Kong Institute of Bankers (The HKIB) has been serving the local banking community in the provision of education and training since 1963. In 1995, with the encouragement and support of the local banking community, the Institute declared its independence from its parent institute in the UK. With an independent status, the Institute is able to better serve the training needs of the bankers in the region and to reflect the importance of Hong Kong as an international financial center.
The continuous professional development program, which comprises of professional examinations and training courses, has helped bank employees to make advancements in their banking career, and is valued by most of them who are determined to strengthen their knowledge base.
In view of the changing landscape of the banking industry in Hong Kong, the importance of continuous professional development and education in this competitive financial market has gained increasing attention. The professional examinations and training programs are offered for members or bank staffs to equip with the essential skills and knowledge to help them "fast-track" their management career.
