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About this book

This book covers Operational Risk Management (ORM), in the current context, and its new role in the risk management field. The concept of operational risk is subject to a wide discussion also in the field of ORM’s literature, which has increased throughout the years. By analyzing different methodologies that try to integrate qualitative and quantitative data or different measurement approaches, the authors explore the methodological framework, the assumptions, statistical tool, and the main results of an operational risk model projected by intermediaries. A guide for academics and students, the book also discusses the avenue of mitigation acts, suggested by the main results of the methodologies applied. The book will appeal to students, academics, and financial supervisory and regulatory authorities.

Table of Contents


Chapter 1. Introduction to the Work and Operational Risk

This chapter describes the integrated risk approach used by the Authors for operational risk measurement and management, and presents a logic scheme to help readers better understand the different elements of Operational Risk Management (ORM). It also describes the evolutionary process of the definition of operational risk, its main features and various dimensions.
Paola Leone, Pasqualina Porretta

Chapter 2. Operational Risk Management: Regulatory Framework and Operational Impact

Banks must establish an independent Operational Risk Management function aimed at defining policies, procedures and methodologies for identifying, measuring, monitoring and controlling operational risks. In this perspective, this chapter analyses (a) the regulatory framework on the operational capital requirement; (b) the regulatory view on Operational Risk Management; and (c) the new Supervisory Review and Evaluation Process (SREP) in relation to operational risk. The chapter also attempts to propose an integrated approach able to defining, managing, monitoring and reporting operational losses together with capital planning, ICAAP (Internal Capital Adequacy Assessment Process), RAF (Risk Appetite Framework) and risk culture of financial intermediaries also in accordance with the new SREP perspective.
Paola Leone, Pasqualina Porretta

Chapter 3. Operational Risk Measurement: A Literature Review

Operational measurement is not the only target of the overall operational risk management process, but it is a fundamental phase as it defines its efficiency; furthermore the need to measure operational risk comes from the capital regulatory framework. Taking this into account, the chapter describes and compares the different methods used to measure operational risk, both by practitioners and by academics: Loss Distribution Approach (LDA), scenario analysis and Bayesian methods. The majority of the advanced banks calculate capital requirement through LDA: the chapter focuses on how it works, analysing in detail the different phases of which it is composed and its applications, in particular the Extreme Value Theory (EVT), which is the most popular one.
Francesco Giannone

Chapter 4. Integrated Risk Measurement Approach: A Case Study

This chapter aims to provide an overview of the main components of an operational risk measurement framework developed by financial intermediaries for which operational risk is more important. This methodology integrates a historical analysis with a scenario analysis. This chapter describes the loss data collection, the assumption and the statistical tools used in the implemented approach. It also describes the methods used to integrate the Expected Lossess (EL) and the Unexpected Lossess (UL) resulting from the two different analyses.
Vitantonio Matarazzo, Mario Vellella

Chapter 5. Almost Concluding Thoughts Between a Comparative Analysis and a Sensitivity Analysis: Look Over the Regulatory View

The chapter proposes a comparative analysis between the new regulatory approach (Standard Measurement Approach, SMA) and the existing one (Advanced Measurement Approach, AMA); provides a risk factor sensitivity analysis of the two approaches and attempts to highlight advantages and disadvantages of this new regulatory approach in the field of the Single Supervisory Mechanism Regulation (SSRM). In this perspective, and in the light of the main results of the comparative analysis, the chapter also tries to define the impact of the new regulatory approach on financial intermediaries in an integrated risk perspective and propose Operational RAF (Risk Appetite Framework) as an important operational management tool.
Paola Leone, Vitantonio Matarazzo, Pasqualina Porretta, Mario Vellella

Erratum to: Measuring and Managing Operational Risk

Without Abstract
Paola Leone, Pasqualina Porretta, Mario Vellella


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