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This book focuses on several topical issues related to the operational risk management in bank: regulation, organisation and strategy. It analyses the connections between the different key-players involved in the operational risk process and the most relevant implications, both operational and strategic, arising from the implementation of the prudential framework.

Inhaltsverzeichnis

Frontmatter

Chapter 1. Introduction

Abstract
The many transformations in the banking industry in the last decades and the series of banking scandals and collapses have emphasized the relevance of operational risk to the extent that the phenomenon has drawn the attention of banking supervisory authorities, practitioners and scholars.
Giuliana Birindelli, Paola Ferretti

Chapter 2. The Operational Risk: An Overall Framework

Abstract
Since the 90s, several factors (e.g., the growing size of the banks, the massive technological investments, the development of e-commerce and e-banking, the outsourcing of production processes) induced to revise operational risk management tools and to reflect on the introduction of specific regulatory requirements. Further attention towards operational risks was brought about by the awareness of the catastrophic nature that operational risk can lead to, in some cases even compromising the survival of the financial intermediary. In this chapter we focus on the specific features of the operational risk, as well as its origin and main sources. Particular attention is also given to the similarities and differences with other risks, namely credit, market, strategic, reputational and compliance risk .
Giuliana Birindelli, Paola Ferretti

Chapter 3. The Regulatory Framework

Abstract
The current regulatory framework underlines operational risk as a significant risk faced by banks and requires coverage by own funds. It includes provisions for three alternative approaches for calculating operational risk capital requirements , reflecting the broad diversity among European institutions. These approaches are namely, the (BIA) , the (SIA) and the (AMA) , which incorporate different levels of risk sensitivity requiring different degrees of sophistication. In this chapter we analyse the main features of all these approaches, highlighting their critical issues. Finally, we shortly describe the last proposals of the Basel Committee, which, among others, propose a new standardized measurement approach for operational risk , as part of the broader objective of balancing simplicity, comparability and risk sensitivity.
Giuliana Birindelli, Paola Ferretti

Chapter 4. Operational Risk Management: Organizational and Governance Issues

Abstract
The centrality of the link between operational risk management and governance is underlined by the several cases of financial collapses , in which losses are mainly connected with supervisory and operational failure on behalf of the top management . Likewise, a sound operational risk management requires a focus on the organizational structure , in response to the need of combining measurement systems with efficient and adequate control units for managing operational risk . In this chapter we analyse the organizational and governance issues related to the measurement and control of operational risk, focusing on the key functions involved (e.g. committee, OR functions), on the interrelationship between the OR function and other functions (internal audit and compliance) as well as on the role of reporting and information technology.
Giuliana Birindelli, Paola Ferretti

Chapter 5. Operational Risk Mitigation: Strategies and Tools

Abstract
Banks adopting advanced measurement approach have the possibility of reducing the operational risk capital requirement in presence of insurance and other risk transfer mechanisms as they demonstrate that a noticeable risk-mitigating effect is achieved and the mitigation techniques comply with specific standards. In this chapter we describe the regulatory framework of the operational risk mitigation techniques and we analyse, particularly for insurance, the main operational issues of their use as operational risk mitigants, highlighting the most relevant impacts on the banks’ operational risk management. We also describe the most widespread instruments banks may use: both traditional and innovative ones.
Giuliana Birindelli, Paola Ferretti

Chapter 6. Operational Risk Modelling: Focus on the Loss Distribution and Scenario-Based Approaches

Abstract
The degree of flexibility that banks have had in operational risk modelling has fostered over the years the development of a variety of methods. Currently, these may be related to two categories, namely the loss distribution approach and the scenario-based approach. This chapter aims at analysing the specific features of both the methodologies, highlighting strengths and weaknesses of each one. As it is not possible to state which approach is the best in absolute terms, according to the best practices, the combined use could be the preferable choice.
Giuliana Birindelli, Paola Ferretti

Chapter 7. Operational Risk: Evidence from Italian Cooperative Banks

Abstract
In the case of the small banks, operational risk management generally takes on a secondary role compared to other risks, more closely associated with typical banking activity (in primis credit risk). This can be mainly due to the low degree of diversification of the activities carried out by smaller banks, which decreases the operational risk exposure and consequently the need to employ human, financial and technological resources in sophisticated systems of operational risk management. In this chapter we present the results of a survey on a sample of Italian cooperative banks . The survey explores different research areas: organizational aspects, measurement methods, Second Pillar , insurance coverage , and trade associations/outsourcing .
Giuliana Birindelli, Paola Ferretti

Chapter 8. Disclosure on OR: Evidence from a Sample of Italian Banks

Abstract
The current regulatory framework requires banks to provide accurate and comprehensive disclosure of their operational risk profile. In particular, banks are required to disclose the approaches for the assessment of their own funds requirements ; they are required to describe the AMA methodology (if adopted), including a discussion of relevant internal and external factors considered in the measurement approach, or (in the case of partial use) the scope and coverage of the different methodologies used. In order to illustrate the degree of disclosure of the OR management, this chapter reports the results of a survey on a sample of listed banks in Italy, focusing on the following areas of investigation: general aspects; organizational structure ; measurement systems ; control, mitigation and transfer systems; capital.
Giuliana Birindelli, Paola Ferretti

Backmatter

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