Operational Risk Control with Basel II: Basic Principles and by Dimitris N. Chorafas

By Dimitris N. Chorafas

This book:*provides a legitimate technique for operational threat control*focuses on administration probability and how one can keep away from it*explains why and the way info expertise is a tremendous operational risk*shows the way to combine fee regulate within the operational threat perspective*details analytical methods to operational hazard regulate, to assist with scorecard developments*explains the excellence among excessive Frequency Low probability and coffee Frequency excessive chance events*provides many case studeies from banking and coverage to illustrate the eye operational dangers deserve *Assists hazard execs in getting ready their establishment to conform with the recent Capital Adequacy Framework issued by way of the Basel Committee on Banking Supervision, which turns into crucial from January 1, 2006*Readers take advantage of a considerably broader perspective on forms of operational dangers, operational hazards controls, and effects to be anticipated from operational danger administration - in comparison to what the reader might achieve from books formerly released in this comparable subject

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Additional info for Operational Risk Control with Basel II: Basic Principles and Capital Requirements

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2 Basel Committee directives in understanding operational risk There is no way of avoiding operational risk in a service economy, but there are sound strategies for damage control. A fundamental understanding of both the type and quantity of operational risk taken by credit institutions, brokerage firms, insurance companies, and other entities is essential, as business and industry face up to increasingly demanding operational-type challenges. Because most financial institutions are ill prepared for operational risk control, the Basel Committee on Banking Supervision has provided the flexibility of different approaches.

Sunshine is always the best disinfectant. It is also a good way to gain public Management control of operational risk 9 confidence. Market discipline matters; it is Pillar 3 of the New Capital Adequacy framework (Basel II). Operational risk control will be that much more effective when the board establishes the proper risk management policies, when we have available a sound methodology, and when our tools are dependable. Also, when the solutions we adopt are characterized by accuracy of execution and timeliness of execution.

The methodology I am suggesting is: ᭿ ᭿ ᭿ ᭿ To start with a classification, which helps to identify op risks To employ a battery of tests in tracking them To use several advanced tools in analysing them, and To develop methods which are open, flexible, and expendable to bring them under control. 1. Notice that op risk control is three-dimensional; it is ineffectual in only one dimension because solutions are not linear. Costs matter (see Part 4). Resource allocation and cost-effectiveness must always be accounted for.

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