There are a lot of books out on operational risk. This is appropriate because operational risk management is a rapidly evolving field. Nevertheless, we must ask of each book: what sets it apart? In the case of this edited collection by Carol Alexander, the answer is its focus on operational risk within the Basle Committee regulatory framework for banks.

The book is divided into three sections:

Regulation,

Analysis, and

Management.

The first section comprises six articles. Three are by regulators and three are by researchers/practitioners. They describe how the proposed Basle II regulations treat operational risk. Strengths and weaknesses as well as implementation issues of the much anticipated regulation are discusses. The six chapters are informative and insightful. They offer the best treatment of this material that I am aware of.

The second section addresses qualitative and quantitative techniques for assessing operational risk. Discussions primarily consider approaches consistent with the three Basle II approaches for calculating capital charges for operational risk—especially the most sophisticated "advanced measurement approach," which provides financial institutions considerable flexibility in how they measure their own operational risk.

The articles of the second section are a mixed bag. Some are nice. Some are worth skipping. One is outstanding. That outstanding article is a piece by Carol Alexander herself. It breaks down operational risks into a matrix of types and identifies which are most amenable to quantification. It goes on to explore Bayesian statistical methods for combining subjective perceptions of operational risk with hard loss data to construct loss distributions reflecting both. This article is the best 40 pages I have ever read on operational risk! If you read only it, this book will be well worth the purchase price.