Operational Risk: The New Challenge for Banks

<body stylesrc="../_private/template_title.htm" topmargin="10" leftmargin="10" bgcolor="#FFFFFF" link="#333366" vlink="#000000" alink="#000000"> <div align="left"> <table border="0" cellspacing="0" style="border-collapse: collapse" bordercolor="#111111" width="100%" cellpadding="0" id="table2"> <tr> <td width="780"> <div align="center"> <table border="0" cellpadding="5" cellspacing="0" height="206" style="border-collapse: collapse" bordercolor="#111111" width="100%" id="table3"> <tr> <td align="right" height="198" width="1%"> <p align="left"> <img border="0" src="../images/book_brink_g_(2002).gif" width="145" height="200"></td> <td valign="top" align="left" height="198"> <table border="0" cellspacing="1" style="border-collapse: collapse" bordercolor="#111111" cellpadding="0" id="table4"> <tr> <td colspan="3" width="0%"> <p class="book_title">Operational Risk<br> <font size="3">The New Challenge for Banks</font></td> </tr> <tr> <td width="1%" class="book_details_tags" valign="top" height="16" align="left"> <img border="0" src="../images/blank_2x2.gif" width="2" height="2"><img border="0" src="../images/blank_2x2.gif" width="2" height="2"></td> <td width="52%" class="book_details_tags" valign="top" height="144" align="left" rowspan="9"> <map name="FPMap2"> <area href="../main/ratings.htm" shape="rect" coords="73, 0, 162, 33"> </map> <img border="0" src="../images_title/brink_24.gif" usemap="#FPMap2" width="218" height="158"></td> <td class="book_details" valign="top" height="16" align="left" width="50%"> </td> </tr> <tr> <td width="1%" class="book_details_tags" valign="top" height="16" align="left"> </td> <td class="book_details" valign="top" height="16" align="left" width="50%"> </td> </tr> <tr> <td width="1%" class="book_details_tags" valign="top" height="16" align="left"> </td> <td class="book_details" valign="top" height="16" align="left" width="50%"> </td> </tr> <tr> <td width="1%" class="book_details_tags" valign="top" height="16" align="left"> </td> <td class="book_details" valign="top" height="16" align="left" width="50%"> </td> </tr> <tr> <td width="1%" class="book_details_tags" valign="top" height="16" align="left"> </td> <td class="book_details" valign="top" height="16" align="left" width="50%"> </td> </tr> <tr> <td width="1%" class="book_details_tags" valign="top" height="16" align="left"> </td> <td class="book_details" valign="top" height="16" align="left" width="50%"> </td> </tr> <tr> <td width="1%" class="book_details_tags" valign="top" height="16" align="left"> </td> <td class="book_details" valign="top" height="16" align="left" width="50%"> </td> </tr> <tr> <td width="1%" class="book_details_tags" valign="top" height="16" align="left"> </td> <td class="book_details" height="32" align="center" width="50%" rowspan="2"> </td> </tr> <tr> <td width="1%" class="book_details_tags" valign="top" height="16" align="left"> </td> </tr> </table> </td> </tr> </table> </div> <div align="center"> <center> <table border="0" cellpadding="10" cellspacing="0" style="border-collapse: collapse" bordercolor="#111111" width="468" id="table5"> <tr> <td> <script type="text/javascript"></script> <script type="text/javascript" src="http://pagead2.googlesyndication.com/pagead/show_ads.js"> </script> </td></tr> </table> </center> </div> <table border="0" cellpadding="5" cellspacing="0" style="border-collapse: collapse" bordercolor="#111111" width="100%" id="table6"> <tr> <td width="50%" valign="top"> <p align="left" class="body_expanded"><strong style="font-weight: 400">This English translation of a German book is a little-known gem among books on operational risk management. It shouldn't be the first book you read on the subject, but it very likely should be the second. Read a book like Risk (<a href="../titles/risk_(2002)_operational.htm">2002</a>) to "see the forest." Then read this book "for the trees."</strong></p> <p align="left" class="body_expanded"><strong style="font-weight: 400">It is a short book, but it offers a wealth of information. The focus is on qualitative aspects of operational risk management — what can go wrong in a financial institution, how to anticipate it, and what to do to avoid it. No other book offers the informed, practical insights that this one does. </strong></p> <p align="left" class="body_expanded"><strong style="font-weight: 400">What I really like about the book is how actionable the advice is. There aren't "pie-in-the-sky" strategy statements. Instead, there is advice to perform an initial self assessment. It tells you specifically what to look at, things like:</strong></p> <p align="left" class="body_expanded"><strong style="font-weight: 400"> <img border="0" src="../images/bullet.gif" width="20" height="10">an organizational chart<br> <img border="0" src="../images/bullet.gif" width="20" height="10">an IT architecture overview with data flows<br> <img border="0" src="../images/bullet.gif" width="20" height="10">transaction volumes<br> <img border="0" src="../images/bullet.gif" width="20" height="10">maximum processing capacity<br> <img border="0" src="../images/bullet.gif" width="20" height="10">internal audit reports<br> <img border="0" src="../images/bullet.gif" width="20" height="10">overtime reports over the last six months<br> <img border="0" src="../images/bullet.gif" width="20" height="10">etc. etc. etc.</strong></p> <p align="left" class="body"> <strong style="font-weight: 400"> There is detailed information on types of operational risk. Some of the material is common sense. Some is more esoteric. What is nice is the fact that it is all pulled together for you. The book tells you what needs to be addressed, so you can get right to work.</strong></p> </td> <td width="50%" valign="top" class="body" rowspan="2"> <table border="0" cellpadding="0" cellspacing="0" style="border-collapse: collapse" bordercolor="#111111" width="100%" id="table7"> <tr> <td width="100%" bgcolor="#333366"> <p class="header_yellow" align="center">Contents</td> </tr> <tr> <td width="100%" class="explanatory_text"> <table border="1" cellpadding="0" cellspacing="5" style="border-collapse: collapse" bordercolor="#CCCCFF" bgcolor="#CCCCFF" width="100%" id="table8"> <tr> <td class="contents_expanded"> <p class="contents_expanded">Introduction </p> <p class="contents_expanded">1 Definition and Dimensions of Operational Risk </p> <p class="contents_expanded">2 Risk Identification and Quantification </p> <p class="contents_expanded">3 Management of Operational Risk </p> <p class="contents_expanded">4 Concluding Remarks </p> <p class="contents_expanded">App. 1 Operational Risk: Diagnosis </p> <p class="contents_expanded">App. 2 Operational Risk: Error Trees </p> <p class="contents_expanded">App. 3 Transaction Volume </p> <p class="contents_expanded">App. 4 Loss Factor Categorization </p> </td> </tr> </table> </td> </tr> </table> <strong style="font-weight: 400"> <p class="body_expanded"> Quantitative techniques are discussed briefly, and the presentation is excellent. Without delving into mathematics, the book offers nice overviews of standard modeling techniques proposed by the Basle committee and other institutions. </strong></p> <p align="left" class="body">There are excellent appendices. One of these is an extensive list of questions broken down by function. Here are just a few examples from the section on systems:</p> <p align="left" class="body"><strong style="font-weight: 400"> <img border="0" src="../images/bullet.gif" width="20" height="10">Is a list of business-critical systems available?<br> <img border="0" src="../images/bullet.gif" width="20" height="10">Is a deputy available in case decisions regarding recovery measures need to be taken?<br> <img border="0" src="../images/bullet.gif" width="20" height="10">Is a detailed recovery procedure available which describes the necessary steps after a system breakdown?<br> <img border="0" src="../images/bullet.gif" width="20" height="10">Are critical systems doubled?<br> <img border="0" src="../images/bullet.gif" width="20" height="10">Are critical systems connected to two independent power systems?<br> <img border="0" src="../images/bullet.gif" width="20" height="10">etc.</strong></p> <p align="left" class="body">I highly recommend the book. It is a veritable roadmap that you will turn to time and time again. If you want more extensive information on quantitative techniques, supplement with Cruz (<a href="../titles/cruz_m_(2002).htm">2002</a>).</p> <p align="center" class="body"> </p> </td> </tr> <tr> <td width="50%" valign="bottom"> <table border="0" cellpadding="0" cellspacing="0" style="border-collapse: collapse" bordercolor="#111111" width="100%" id="table9"> <tr> <td width="100%"> <script type="text/javascript"></script> <script type="text/javascript" src="http://pagead2.googlesyndication.com/pagead/show_ads.js"> </script> </td></tr> </table> </td> </tr> </table> <div align="left"> <div align="left"> <table border="0" cellpadding="10" cellspacing="0" style="border-collapse: collapse" bordercolor="#111111" width="100%" bgcolor="#FFFFCC" id="table10"> <tr> <td width="100%" align="center"> <table border="0" cellpadding="0" cellspacing="0" style="border-collapse: collapse" bordercolor="#111111" bgcolor="#FFFFCC" id="table11"> <tr> <td> <p class="body" style="margin-bottom: 6; margin-left:10"><b><font color="#333366" size="3">For related books, see sections:</font></b></p> <p class="bullet" style="margin-left: 10; margin-top:5; margin-bottom:5"><strong style="font-weight: 400"> <img border="0" src="../images/bullet.gif" width="20" height="10"><a target="_top" href="../link_topic/risk_management_operational_risk.htm">Risk Management - Operational Risk</a></strong></p> <p class="bullet" style="margin-left: 10; margin-top:5; margin-bottom:5"> <img border="0" src="../images/bullet.gif" width="20" height="10"><a target="_top" href="../link_topic/risk_management_general.htm">Risk Management - General</a></td> </tr> </table> </td> </tr> </table> </div> </div> </td> <td>  </td> </tr> </table> </div>  <table border="0" style="border-collapse: collapse" width="100%" cellpadding="0" id="table1" bgcolor="#FFFFFF"> <tr> <td colspan="2" height="12"> <p style="margin-top: 0"> </td> </tr> <tr> <td align="right"> <p align="left" style="margin-bottom: 2px"> <a target="_top" href="http://www.riskexpertise.com/link/advertising.htm"> <font size="1" color="#000000" face="Arial">Ads by Contingency Analysis.</font></a></td> <td align="left"> <p align="right" style="margin-bottom: 2px"> <a target="_top" href="http://www.riskexpertise.com/link/advertising.htm"> <font size="1" color="#000000" face="Arial">Advertise on this site.</font></a></td> </tr> <tr> <td align="center" colspan="2">  <iframe src="http://servedbyadbutler.com/adserve/;ID=147917;size=300x250;setID=93136;type=iframe" allowtransparency="true" background-color="transparent" style="margin: 0px; padding: 0px; border-width: 0px" width="300" height="250" frameborder="0" marginwidth="0" marginheight="0" scrolling="no"> <![if lt IE 4]> <script src="http://servedbyadbutler.com/adserve/;ID=147917;size=300x250;setID=93136;type=js" type="text/javascript"> </script> <noscript> <a href="http://servedbyadbutler.com/go2/;ID=147917;size=300x250;setID=93136"> <img src="http://servedbyadbutler.com/adserve/;ID=147917;size=300x250;setID=93136;type=img" border="0" height="250" width="300" alt=""></a> </noscript><![endif]> </iframe>   </td> </tr> </table> <p align="center" style="margin-top: 20"> <map name="FPMap0_I1"> <area href="http://www.riskbook.com" shape="rect" coords="0, 0, 184, 29" target="_top"></map> <img border="0" src="../images/open_book_riskbook.gif" usemap="#FPMap0_I1" width="185" height="30"></p> <p class="a" align="center"><font face="Arial" size="2"><a href="../main/disclaimer.htm">disclaimer</a></font></p> <p class="a" align="center"><span class="verdana10">website:</span> <a target="_top" href="http://www.contingencyanalysis.com"> <font size="2" face="Arial">http://www.contingencyanalysis.com</font></a><br> <span class="verdana10">books direct link:</span> <a target="_top" href="http://www.riskbook.com"><font size="2" face="Arial">http://www.riskbook.com</font></a><br> copyright <font face="Times New Roman">©</font> Contingency Analysis, 1996 - current</p> <p class="a" align="center"><map name="FPMap1_I1"> <area target="_top" href="http://www.contingencyanalysis.com" shape="rect" coords="0, 0, 240, 88"> </map><img border="0" src="../images/logo_book_white.gif" usemap="#FPMap1_I1" width="241" height="89"></p>  </body>