Advances in Operational Risk

<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_risk_(2003)_operational.gif" width="135" 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">Advances in Operational Risk</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="74, 0, 162, 32"> </map> <img border="0" src="../images_title/risk_(79.gif" usemap="#FPMap2" width="163" 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> <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> </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"><strong style="font-weight: 400">The field of operational risk management is rapidly evolving. Among books on the topic, this edited collection is the gold standard.</strong></p> <p align="left" class="body"><strong style="font-weight: 400">In recent years, the field has progressed significantly due to the work of the Basle Committee. Operational risk entails a wide variety of contingencies. Some are better assessed qualitatively. Others are better managed quantitatively. </strong></p> <table border="0" cellpadding="0" cellspacing="0" style="border-collapse: collapse" bordercolor="#111111" width="125" align="left" id="table7"> <tr> <td width="120"> <script type="text/javascript"></script> <script type="text/javascript" src="http://pagead2.googlesyndication.com/pagead/show_ads.js"> </script> </td><td width="5"> </td> </tr> </table> <p align="left" class="body"><strong style="font-weight: 400"> Quantification of operational risks depends upon two forms of data:</strong></p> <p align="left" class="body"> <img border="0" src="../images/bullet.gif" width="20" height="10">loss data, and<br> <img border="0" src="../images/bullet.gif" width="20" height="10">risk indication data.</p> <p align="left" class="body">The latter category includes such things as trading volume, the amount of overtime being performed by staff, systems down time, etc.</p> <p align="left" class="body">Modeling must incorporate both of the above retrospective (loss) and prospective (indicator) factors.</p> <p align="left" class="body">Assessing risk is only part of the story. Risk managing it is a next step. <strong style="font-weight: 400">Management is best handled at the functional unit level—legal risk managed by lawyers, settlement issues by back office personnel, etc. However, as with market and credit risk, there should be a centralized unit to facilitate the process.</strong></p> <p align="left" class="body"><strong style="font-weight: 400"> Satisfying regulatory requirements and allocating capital for operational risk are still more tasks to be addressed.</strong></p> <p align="left" class="body"><strong style="font-weight: 400">The articles in this book cover the entire process, from data collection to modeling and capital calculation. Many of the authors work for large financial institutions or consulting organizations that are actively implementing the concepts they write about. Discussions are concise, insightful and mostly practical. They are clearly informed by the careful deliberations of the Basle Committee.</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="table8"> <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="table9"> <tr> <td class="contents_expanded"> <p class="contents">Introduction </p> <p class="contents"><b>MANAGING OPERATIONAL RISK </b></p> <p class="contents">1. Operational Risk Management: The Solution is in the Problem </p> <p class="contents">2. Managing Operational Risk </p> <p class="contents">3. New Trends in Operational Risk Insurance for Banks </p> <p class="contents">4. Operational Risk in Bank Acquisitions: A Real Options Approach to Valuing Managerial Flexibility </p> <p class="contents">5. How to Introduce an Effective Operational Risk Management Framework </p> <p class="contents"><b>RISK ANALYSIS, IDENTIFICATION & MODELLING </b> </p> <p class="contents">6. Operational Risk Capital Allocation and Integration of Risks </p> <p class="contents">7. Developing an Operational VAR Model using EVT </p> <p class="contents">8. The Use of Reliability Theory in Measuring Operational Risk </p> <p class="contents">9. Model Selection for Operational Risk </p> <p class="contents">10. Model Error in Enterprise-wide Risk Management: Insurance Policies with Guarantees </p> <p class="contents"><b>PRACTICAL IMPLEMENTATION </b></p> <p class="contents">11. Building and Running an Operational Loss Database </p> <p class="contents">12. Reputational Risk </p> <p class="contents">13. Corporate Reputation: Not Worth Risking </p> <p class="contents">14. Moody's Analytical Framework for Operational Risk Management of Banks </p> <p class="contents">15. From Operational Risk to Operational Excellence </p> <p class="contents">16. The Legal and Regulatory View of Operational Risk </td> </tr> </table> </td> </tr> </table> <p align="left" class="body"> <strong style="font-weight: 400">The book is not perfect. Systems firm SAS "sponsored" the book, so the opening article is a thinly veiled advertisement for their system. It is not a bad chapter, but I think readers would find it more useful after they have read some of the more introductory chapters. My recommendation is to start with Chapter 2, which is an exceptional overview of operational risk and its management. (It was Chapter 1 in the first edition.) A chapter on bank mergers has little, if anything to do with operational risk. Also, there is little integration between chapters. Some chapters are redundant in areas. These editorial shortcomings are modest. </strong></p> <p align="left" class="body"> <strong style="font-weight: 400">Overall, this is an outstanding work. No other book on operational risk offers the sophistication, clarity or breadth that this one does.</strong></p> <p align="left" class="body"> <strong style="font-weight: 400">For anyone who is new to operational risk management, I recommend that you read this book first. Follow up with Cruz (<a href="../titles/cruz_m_(2002).htm">2002</a>) and van den Brink (<a href="../titles/brink_g_(2002).htm">2002</a>) for more detailed looks at, respectively, quantitative and qualitative aspects of operational risk management. </strong></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="table10"> <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="table11"> <tr> <td width="100%" align="center"> <table border="0" cellpadding="0" cellspacing="0" style="border-collapse: collapse" bordercolor="#111111" bgcolor="#FFFFCC" id="table12"> <tr> <td> <p class="body" style="margin-bottom: 6"><b><font color="#333366" size="3">For related books, see sections:</font></b></p> <p class="bullet" style="margin-top: 4; margin-bottom: 4"><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-top: 4; margin-bottom: 4"> <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>