The credit crisis and operational risk - implications for practitioners and regulators

Andreas A. Jobst

Abstract

ABSTRACT

The fallout from the financial crisis has illustrated that many sources of systemic risk were triggered or at least propagated by vulnerabilities in operational risk management (ORM), which has not kept pace with financial innovation, and an excessive focus of regulation on prudential requirements without recognition of substantial operational risk in marketbased liquidity transformation. At the same time, institutions are at different stages of systems development and show considerable dispersion in ORM practices while falling short of integrating operational risk as a horizontal process. This is troubling in light of continued regulatory shortcomings. This paper highlights the increased importance of operational risk amid greater systemic risk concerns and reviews the current situation of ORM. In conclusion, it provides some suggestions on the future development of ORM - both from an organizational and industry perspective.